E stas and many other questions left unanswered, due to the uncertainty due to the environmental crisis that invades the business future, in which businesses develop in the absence of immediate liquidity; therefore, shareholders now demand that companies require from their managers rational, pro-active and practical actions according to the uncertainty events that arise, to assess the ability of the business organization to generate cash and identify the factors that cause it. Liquidity Risk, due to the temporary or permanent mismatch between cash income and expenses; since short-term debts are measured based on the amount and time, for example: A company may have capacity in amount if they have a high inventory, but it will only have capacity in time if it can sell said inventory in an adequate time;therefore, the optimum is to generate liquidity at no cost; impossible thing since every benefit has its cost.
T he treasury projections have become a powerful alarm bell tool to foresee the shortage and use of surplus money; Hence, the preparation of cash flow is not a mere exercise in numerical calculations, but rather a strategic plan that includes descriptions of actions committed to specific objectives, and measurable indicators, to the benefit of achieving profitability, efficiency and safety. from the investment.
E mong the factorial elements that affect revenue generation (sales): The profit margin of the product, sales volume, inventory level, the level of demand, production volume, utilization of installed capacity, the amount of money the company has, the economic conditions of the region or country and the level of perception of the administrator to distinguish between productive and unproductive expenses and investments; Therefore, we have as a result a whole set of goals and proposals for the participation of each of the members of the organization in the operational processes, since costs and benefits are two sides of the same coin with different remuneration.
Diagram of Inputs and Outputs of January
To evaluate the inflows and outflows of money, it is necessary to keep in mind:
1) E ntradas cash .- Analyze all the necessary adjustments according to cyclical sales trends and extra income that can be generated, so it is preferable to include explanatory notes to the projections and fluctuations that could give.
2) S Alida efectivo.- forecast expenditures by category helps prioritize expenditures, and display those who have to be in cash, such as those purchases are made on credit and to liquidate in a given period are taken, remembering that the inflation index, the interest rates for financing, and the exchange rate are preponderant factors when making decisions on disbursements, due to the cost of money.
3) Determination of the cash flow.- The income minus the expenses of each week, month or year must influence the initial balance of the following period, however, the ability with which to count on generating income and effective disbursement will impact on your cash balance to generate liquidity at no cost.
E n Quadrant Corporate Liquidity how important will be on speed and quantity in money management; They are principles that act as devices when making decisions, which is why knowledge and skills are required for their administration. (1) Since the more liquid an asset or a good (financial or not), the easier it is to discard of him, finding buyers and prices, which favors his purchase.
(1) International Accounting Standard 7 Statement of Cash Flows (IAS 7) is contained in paragraphs 1 to 53.
| C UADRANTE OF L IQUIDEZ E MPRESARIAL | ||
|
TICKETS |
DEPARTURES |
|
|
QTY IDAD |
FIRST PRINCIPLE “ Whenever possible, cash inflows should be increased «
Strategies: -Increase sales volume, in relation to its cost benefit -Increase the sales price in relation to the degree of elasticity of your demand -Improve the sales mix (boosting those with the highest contribution margin) -Remove discounts that may not contribute to your profitability or cost recovery. -Establish a stratification of the client portfolio and permanent control. -Make low-moving goods, waste and unnecessary to business. |
SECOND PRINCIPLE
" Whenever possible, money outflows should be reduced" Strategy s: - Pay commissions on collections not on sales.
(Decrease the costs of not having quality)
|
|
TICKETS |
DEPARTURES |
|
|
SPEED |
T ERCER PRINCIPLE
" Whenever possible, you should accelerate cash inflows ” Strategies: Request advances to clients Shorten credit terms - provide prompt payment discounts Give regular customers a head start. Chase when payments are late Cash Band Sell with discounts that do not mean expensive costs Seek maximum inventory turnover, even if the profit margin is lower. |
FOUR PRINCIPLE
" Whenever possible, money outflows should be delayed" Strategies: Negotiate with suppliers as long as possible. Acquire inventories and other assets as soon as they are needed Redeem with your products |
Note: Transactions that do not require cash.
Many investment and financing activities do not have a direct impact on current cash flows, although they do affect a company's capital and asset structure. Some examples of non-cash transactions are:
- The acquisition of assets either by assuming directly related liabilities or by means of a financial lease; The acquisition of a company by means of an issue of shares or participations; and the conversion of debt into equity
It is worth considering that the higher the uncertainty, the greater the liquidity risks there will be, as well as the cash runs, cause many problems for the administration if there is no clear overview of the strategy and planning from the Senior Management. Among some Tip´s that create uncertainty we have:
- Unforeseen changes in the shareholder composition of the company and / or sudden changes in the main executives Deficiencies in accounting and financial information Liabilities contracted at costs higher than the market (use of agiotistas) Deterioration in the equity base due to accumulated losses or constant distribution of dividends. Diversification in fields not known to the customer. Unexplained decrease or increase in sales, liabilities, profits, etc. Increase in inventory or portfolio turnover. Delay in payments to suppliers, public services, employees. Constant or too high overdrafts.Increase or non-payment of fiscal and parafiscal obligations.
For the above we could conclude:
- Each entity will present its cash flows from operating, investing and financing activities, in the way that is most appropriate depending on the nature of its activities. Cash flow is the result of business decisions, so that investments in assets in clients accounts receivable, inventory, fixed assets is Stored money, hence, in finance there is the aphorism that says: Before you go to apply for a loan to the bank, look for the money you have tied up in your portfolio, in inventories or other assets , and that what is not known cannot be managed. Companies do not necessarily go bankrupt due to losses, but they can disappear because they cannot afford their current payments.. Cash is the vital financial blood for your business. The key to Cash Management will then be in the line of sufficient maximum and minimum permanent equilibrium to start the business and obtain a higher profitability and security of your money.
Glossary
Operating activities.- They are the main activities of the company that produce income and other activities that are not investment or financing.
Investment activities.- With the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Financing activities.- These are activities that result in changes in the size and composition of the company's stockholders' equity and loans.
E quivalentes of efectivo.- Short - term investments of high liquidity which are readily convertible to cash figures known and which are subject to an insignificant risk of changes in value.
E f ective.- Includes cash on hand and demand deposits.
Cash flows.- With cash inflows and outflows and their equivalents.
Download the original file
