Executive Summary
The article compares classical ex post Cash Flow Reporting with modern ex ante Cash Flow Analysis & Management. It sets focus on integrated Cash Management and Cash Flow forecast and explains how integrated Data Management works. Insights in Optimization of Financial Supply Chains complete the picture.
Introduction: Benefits of Integrated Cash Flow Information
With margins getting squeezed, the optimized use of the resource known as capital has never been more important for companies. At the same time, the globalization of the markets means that new risks must be hedged due to volatile currencies. Risks from interest rates, supply, and quality must become transparent. Customer and vendor credit risk with their link to dependent ‘risk family trees’ after the subprime crisis is obvious. Company performance hinges to a great extent on an efficient and effective internal treasury. Managers need to access accurate company data at the “push of a button,” complete transparency and disclosure of risk factors, and integration with all relevant business processes.
Cash Flow Reporting
The importance of cash-flow management with the components of cash-flow reporting and cash-flow monitoring has changed dramatically. Cash- flow monitoring has been an important part of managing a company for years, but it always was an ex-post view on the balance sheet. The structure was defined by legislation. So, IAS7 defines indirect cash flow with:
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Annual net profit /loss
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Cash flow from operating activities
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Cash flow from investing activities
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Cash flow from financing activities
representing the cash flow. So, cash flow reporting is an established part of a corporate’s period end reporting.
Cash Flow Accounting and Liquidity Planning
Cash-flow reporting is aided by cash-flow accounting, which records changes in cash flows directly. Incoming and outgoing payments of liquid funds, such as cash in hand and bank savings, are analyzed in real time and recorded according to their cash flow classes in revenues and expenditures.
The primary task of cash accounting is to provide information on a corporate’s solvency and internal financing potential. It delivers the actuals and is, therefore, the basis for cash flow analysis and liquidity planning. (Liquidity planning, and its potential integration with sales, personnel, production and investment plans, is beyond the scope of this article.)
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