To carry out good financial management in your business, it is essential to monitor data and metrics about the company's situation. To do this, it is worth using the right tools, such as cash flow. After all, it allows you to carry out different financial analyses. For management, this is important because it helps to identify bottlenecks and points for improvement, as well as being useful for proposing changes and solutions. In practice, this can lead to more effective financial decision-making. If you are an entrepreneur or financial manager, it is essential to understand the main types of financial analyzes that can be done based on cash flow. Check out! What is a cash flow? Cash flow is an accounting tool that serves to record and monitor the business's financial movements. With this, it demonstrates how much money a company generates, spends and invests during a given period. Among other functions, cash flow serves to monitor the financial movements of a business. The idea is to ensure that the business operates in a healthy scenario, with more capital generation than expenses. What are the main types of cash flow? Knowing what cash flow is, it is worth knowing its main types. This is necessary because each of them offers specific information about the financial movements of a business.
Therefore, cash flow types give rise to different financial analyses. In total, there are six main types of cash flow. See what they are! Operating cash flow Operating cash flow represents all inflows and outflows of money related to the company's operations. Direct cash flow Direct cash flow includes all incoming and outgoing records without considering any type of discount. As a result, operations are launched in a raw form. Indirect cash flow The indirect cash flow is based on the profits and losses indicated in the DRE (Income Statement for the Year) and takes into account depreciation and amortization. Projected cash flow Projected British Student Phone Number List cash flow refers to the projection of a company's inflows and outflows of money during a given period. Discounted cash flow Meanwhile, discounted cash flow estimates the value of a company by predicting its future cash flows and discounting them to arrive at a present value. Free cash flow Finally, there is free cash flow, which corresponds to what remains in the company's cash flow after accounting deductions and payments. It measures an organization's ability to generate capital in the short, medium and long term.
What financial analyzes can be done based on cash flow? Now that you know what cash flow is and what its main types are, it is easier to understand what financial analyzes can be done using this tool. For example, by comparing income and expenses, you can analyze how the organization is progressing. This way, it is possible to draw conclusions about the current situation of the business and what the prospects for the future are. You can also analyze whether the revenue obtained generates enough cash to cover the organization's expenses. The tool also helps to see if there is capital to invest in the company's expansion. Furthermore, through cash flow, it is also possible to determine the business’s working capital. That is, the amount of money that the company has available to carry out its operations and maintain financial commitments. Furthermore, it is worth knowing that there are two types of analyzes that you should know about: vertical and horizontal. In vertical analysis, cash flow is evaluated from top to bottom. Thus, it is possible to check the total balances relating to the volume of inflows and outflows.