What are cash flows and how are they classified?

In modern conditions, financial management in connection with the limited financial resources is extremely important for virtually any enterprise. Ultimately, on how efficiently the organization controls and directs cash flows, its competitiveness and success in business depends . Analysis of this indicator plays a big role in assessing the financial position of the enterprise.

The concept and essence of cash flow

In general, this economic term is derived from the English phrase "cash flow", which can be translated as "cash flow". Cash flows represent movements of the enterprise's finances for a certain time interval. In other words, these are the differences between receipts and payments for a specific period. With the help of this indicator, you can find out exactly how the money flows, which are not always taken into account when determining profit: tax payments, investment costs, loan payments, taxes due to profits, etc. For a more complete disclosure of the essence of this term, let us consider the classification of its constituent parts.

Types of cash flows

1. Depending on the scale of servicing of economic processes:

• Throughout the enterprise. This is the most general form, which includes all the inflows and outflows of finance in this organization.
• By structural subdivisions. In the role of the latter, responsibility centers can also act.
• On specific business transactions. It is the primary object of controlling monetary resources.

2. Depending on the type of cash-flow, cash flows are:

• On operating activities. It is connected with payments to suppliers and outsiders of services related to production activities. This includes the salary of staff involved in the operational process, as well as the corresponding tax payments. Simultaneously, this type of cash flow shows the proceeds from the sale of goods and tax authorities in the case of the recalculation of overpaid mandatory payments;
• On investment activity. It includes receipts and payments from financial and real investment, as well as income from the sale of intangible assets and retired fixed assets, rotation of investment portfolio instruments and the result of other similar transactions;
• On financial activities. This type is associated with the movement of money associated with the attraction of loans, loans, additional share or share capital, payment of dividends and interest on deposits, etc.

3. By direction or end result:

• positive. This is the sum total of all receipts from each type of economic activity. As an analogue also use the expression "inflow of monetary resources";
• negative. The total amount of all payments in the process of the enterprise. In other words, it is the "outflow of money resources".

4. The method of calculating the volume of cash flow is:

• clean. It is the difference between all receipts and expenditures of funds;
• gross. Characterizes all positive and negative flows for a particular period under consideration.

5. On the level of sufficiency:

• excess. Receipts exceed the need of the company;
• in short supply. The inflow of money is lower than the actual needs of the enterprise.

6. By the method of evaluation over time, cash flows are:

• Present, given by size to the current moment;
• Future, reduced by value to a certain future period.

7. By continuity of formation:

• Regular (as a rule, it is related to operating activities);
• Discrete (the result of one-time business transactions, such as buying a license, gratuitous assistance, acquisition of a property complex, etc.).

8. According to the stability of the time intervals during which they are formed, regular cash flows are:

• Regular with uniform intervals of time within the considered period. An example is an annuity.
• Regular with uneven time intervals within the same period (for example, lease payments with a special payout schedule).

The above classification provides opportunities to more fully and purposefully implement planning, accounting and analysis of the company's cash flows, regardless of the scope of its activities.