Company's Financial Accounting
Cash Flow Budget preparation and Analysis: Excel Template
An effective business management is determined, inter alia, by the ability to competently control the cash flows of the enterprise and manage its solvency and liquidity. This can be done using the Cash Flow Budget, which is one of the most common financial budgets of the company.
The cash flow budget allows to exercise control over the financial resources of the organization in order to avoid cash shortage (deficit) on the one hand, and to effectively use excess cash on the other hand, i.e. prevent a surplus of funds. Since the surplus of "free" money (excess liquidity) leads to short-received profit, i.e. loss of potential profits by the company and means the inability of management to effectively use the available resources, and a deficit by-turn indicates its insolvency. Thus, timely identification of problems will allow to react and eliminate them promptly, for example, to invest surplus funds, and to cover the lack of funds with a bank loan.
Definition: A cash flow budget is a forecast of company's cash receipts and expenditures, which can be generated for different periods (week, month, year), but it is most often compiled for a year broken down by months. The budget consists of several sections, which show the cash flow for the main activities: operating, financial and investment.
As the main indicator of the company's solvency is the amount of Net Cash Flow (NCF) (in Finnish, nettorahavirta), which is the sum of the cash flow from all three types of activities of the enterprise. This indicator characterizes the financial condition, determines the prospects for increasing the value of the company and its investment attractiveness. Net cash flow (NCF) is estimated as follows:
- Positive cash flow, i.e. NCF is greater than zero: Cash inflows exceed cash outflows, which is a positive factor for investors. The higher the indicator, the more attractive the company will be for investors.
- NCF is equal to or close to zero: The company does not have enough funds for development, which means investors are unlikely to be interested in such a business.
- Negative cash flow, i.e. NCF is less than zero: Cash outflows exceed cash inflows. This may indicate a loss-making business if this situation is protracted. Investing in such a company is not worth it.
The financial analysis of the cash flow budget is based on a comparison of planned indicators with actual one, as well as with data from previous periods. When deviations are identified, the causes of their occurrence have to be studied and possible consequences assessed from the point of view of their impact on the company’s activities. So, the purpose of drawing up a cash flow budget consists in effective funds management in order to have them in sufficient quantity to meet the needs of the enterprise, and at the same time to receive higher return on investing "free" money.
A cash flow budget is prepared by direct or indirect method. A more detailed description of the budget sections, methods of its preparation can be found on our website in the section “COMPANY'S CASH FLOW STATEMENT".
Cash Flow Budget, direct and indirect method, free download template in Excel format
English, Russian and Finnish versions
| Name | File to download |
|---|---|
| Cash flow budget, direct method | DOWNLOAD FREE |
| Бюджет движения денежных средств, прямой метод | СКАЧАТЬ БЕСПЛАТНО |
| Kassavirtabudjetti | LATAA ILMAISEKSI |
| Cash flow budget, indirect method | DOWNLOAD FREE |
| Бюджет движения денежных средств, косвенный метод | СКАЧАТЬ БЕСПЛАТНО |
| Rahavirran budjetti | LATAA ILMAISEKSI |