Business and Finance System

Posts Tagged ‘Cash flow’

when there are increases in the cash requirements resulting from extended payment deadlines, companies must rely on third parties seeking to obtain the necessary financial means. But the discounting and factoring financial services, while offering advantages to companies for financial management and the liquidity, they also pose a high financial cost and it can not be used in all businesses.

Another point is that in many cases, cause bad loans to the company concerned about economic losses so great that its short-term solvency is impaired. And in the worst failures may force the company to permanently cease their business activities.

So the active management of the collection allows firms to receive a steady and abundant flow of cash, money can be reinvested in the company and therefore do not have to resort to external financing. For which a large cash flow ensures good financial health of companies. And it prevents them from having to resort to temporary funding sources, thus achieving a considerable saving of financial interests.

Now those times when the word was enough to ensure the success of business operations and in which the bad payers were assigned the finger and the margins of commercial activity have already passed into history. Morality in the business world does not punish the poor payment practices, and now intentionally delaying payments to providers is often considered as equivalent to good corporate governance. Currently have a harmful habits universally extended payment posed a significant risk to the suppliers of goods and services.

It should be noted that the deterioration in payment practices not only caused by economic factors, but also reflects a structural trend in relations between companies. Therefore the phenomenon of delinquency should not be attributed solely to changes in economic cycles, but there are also structural causes.

Thus the speed with which collections are made of invoices is essential to business competitiveness. Any delay in charging the longer the time lag between the flow of cash outflows and inflows, causing a marked deterioration in the cash position of companies and causes increase in interest expenses and hence financial costs.

Companies should worry about collecting all sales on time, as each day of delay in payment of an overdue bill to the creditor company is a financial cost, and therefore the collection team’s mission is very important to account firm performance.

And do not forget that one of the key factors for the smooth running of companies is the ability to generate cash, and this capability is directly proportional to the effectiveness of management companies achievable.

Keep in mind that one of the most universal principles of good financial management is based on the axiom that measuring the value of a company is best done by evaluating the cash flows by calculating book profits. Therefore when measuring the wealth of a company, the best size that can be employed is the cash flow and not the accounting profit.

The company receives the cash flows and can reinvest in the business, but accounting profits are recorded when received, rather than when money is actually available to the company.

Consequently, it is more valid to the valuation of a company using cash entries (dynamic concept) that the benefit (static concept) that provides the business. Besides the profit generated is a magnitude more manipulable than cash flows.

Fundamental analysis of company

In general, fundamental analysis involves a lot of data variables that must be analyzed, where some of these variables is quite important to note are:

* Strong revenue growth (revenue growth)
* Return on shares outstanding (earnings per share-EPS)
* The ratio of EPS growth
* The ratio of stock price to earnings perlembar stock (price earnings ratio)
* The ratio of share prices on the growth of corporate earnings (price earnings growth ratio)
* The ratio of stock price to sales (price / sales ratio)
* The ratio of stock price to book value (price book value)
* Ratio of corporate debt (debt ratio)
* Net income margin (net profit margin)