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Business Notes on Cash flow calculation and analysis
Business Notes on Cash Flow Calculation and Analysis typically provide an
overview of cash flow and cash flow statement principles. It also provides
calculations of cash flow from operations, investing and financing activities. Part
of the notes is the analysis of cash flow trends and patterns. This is a good
perquisite for understanding Cash flow forecasting and budgeting. Actual
calculation on cash flow and liquidity of cash flow risk and impact of financial
decisions are also included.
These notes will help students will learn how to calculate and analyse cash flows.
The notes will also help student in defining and understanding the key terms
associated with cash flow calculations. The notes will also help student identifying
the sources and uses of cash within a company or project. The notes will also help
student understand the importance of cash flow forecasting -Applying best
practices in cash management.
Cash flow calculation and analysis Energy Power is an Australian mining company that mined/produced 2 million tonnes of coal per year both in 2019 and 2020. The company export 50% of its production to China, 30% to Japan, 10% to India, and the rest is sold in Australia. All exports are paid immediately upon sale. Your job is to answer the questions with publicly available information on coal prices and exchange rates on the internet (please cite your sources). You have to show your full calculations to have a full mark. Estimate its cash flow for the full year Assuming that the company's exports are evenly distributed throughout the year, we can estimate its cash flow for the full year of 2019. January 1st will be the first day of export for the year, so we can estimate that the company will bring in 166,666 in cash on that day. Then, on the first day of every month following, we can assume that the company will receive another 166,666 in cash from exports. This means that by December 31st, the company will have received a total of 2,000,000 in cash from exports for the year. Therefore, we can estimate that the company's total cash flow for 2019 will be 2,000,000. The company produced 2 million tonnes in 2019. Of the 2,000,000 tonnes, 50% to china = 1,000,000 tons 30% was exported to Japan = 600,000 tons 10% was exported to India = 200,000 tons 10% was exported to Australia = 200,000 tons
company's situation and indicates how much money the company has available for investment activities, debt repayment and profit distribution (Sedláček, 2010). In this way, it provides information about. Based on the information given, it can be estimated that the cash flow of the company for the full year of 2019 will be 2,000,000. This is because exports are equally allocated on the first day of every month, and there are 12 months in a year. This number may be slightly different in reality due to other factors such as import costs, but this provides a general idea of what to expect. Qn 2) We ca also estimate the cash flow of the company for the full year of 2020 considering that exports are equally allocated on the first day of every month. Given that the exports per month is 166,666 per month and the allocation is done in equal measure for the countries specifies, the cash flow will be as follows. The monthly export is 166,666 x 329 = 54, 833,114. Multiply this by 12 months 54, 833,114.00000 x 12 = 657,997, 368. We then divide this equally by 4 1,999,992 / 4 = 499, CASH FLOW Operation Net monthly exports 166, Total tonnage exported in 12 months 1,999, Revenue from all countries in 12 months 657,997, 368 Total revenue 657,997, 368
Qn 3) By comparing the results on 1 and 2 and we can note that the main drivers of the cash flow changes is the allocation of the coal loads. Since each country is allocated the same amount of coal, they will all contribute the same revenue. That is why the Operating cash flow is the cash flow from ongoing business activities. This is created by the value chain. In the cash flow statement, only income and expenses from normal business activities are included, for example production costs and income from sales (Chang et al., 2014). Investments (e.g. in monetary assets) or the increase/decrease in equity through the issue of shares or the distribution of dividends are not taken into account. To understand the basic principle of the cash flow statement, one can simply imagine a glass of water. The glass is half full (the water symbolizes the liquid funds). You can have a sip (these are the payouts) and refill them (these are the deposits). This process can be repeated as often as you like. The water that is still in the glass at the end of the analysis is symbolic of our cash flow. Qn 4) By estimating the cash flow and assuming that all exports to China in the year are paid on the 1st of June 2019. We find that the cash flow will be the same. By comparing these results and those obtained in question 1. This will mean that the exports revenue to china will not be allocated by the time the cash flow is computed. The cash flow will be less the revenue from China CASH FLOW Operation
masse, they are hit as big creditors to the states themselves. Due to inflation, debt is shifted from the state to the central banks. If things continue like this, the ECB will be the largest creditor of the states. (b) Higher inflation in Australia is expected to affect the purchasing power of net exporters by 2021. Inflation means the increased amount of money in circulation and the associated rising price level. The prices of all goods are rising continuously and you can buy less than before for one euro. The cash flow statement can be drawn up as a retrospective (such as when published as a supplement to the annual financial statements and as part of the balance sheet analysis) or as a prospective (planning instrument) account. Inflation benefits debtors and hurts creditors. Because with the devaluation of money, the real value of claims also shrinks. The biggest winner is therefore the state. If the rate of inflation is higher than the rate at which he borrowed money, his debt miraculously melts away. The beneficiaries also include the banks, which themselves hardly have any funds of their own, but borrow the money from the ECB at mini-interest rates and pass it on at a higher price. “The banks are supported by the state. After all, they are his biggest financier. The biggest losers are the middle-class citizens. Inflation always hits the broad masses. It is not prepared for the price increases. Professional investors, on the other hand, are smarter and have secured their money early on. Inflation weakens purchasing power and eats up savings, which usually have low interest rates. Qn 7. The Public-private partnership model is a public infrastructure funding model for major projects such as telecommunications system, power plants or airport. The government represents the
public partner at the national level. On the other hand, the Fisher effect refers to the tendency of change in nominal interest rates following the rate of inflation. Using available data, we can estimate the PPP and Fisher effect for the US/Euro monthly bilateral exchange rate. The following plot represents these financial components displayed together and also identifies the main drivers of this exchange rate. USA inflation has risen to its highest in the past 40 years by 7.5% (Bureau of Labor Statistics 2021) This means that nominal interest rates have risen too. The main driver here is inflation. The level of public infrastructure funding has decreased in the last two years. The main driver here is government expenditure. We can represent this as follows 0 2 4 6 8 10 12
Chart Title
PPP Fisher effect
