Published on : 01 April 20203 min reading time

There are a number of things you can do to find out how healthy a company is. The financial analyst may be interested in sales growth. This indicator makes it possible to analyze the evolution of a company’s activity. It also provides information on the acquisition of new markets. Analyzing a company’s cash flow also makes it possible to reveal the company’s situation.

Tips for calculating cash flow

A corporate treasury refers to all the liquid assets held at the bank or in the company’s cash position. To evaluate it, it is necessary to know the cash balance, the amounts available in the company’s bank accounts as well as postal cheques. To calculate the cash position, the company treasurer must be familiar with banking and financial techniques.

Its management is based on the main axes, namely: financial risks and liquidity. When managing cash, one must take into account the activities concerning cash inflows, the profitability of the funds committed by the company, the ability to pay and the reduction of risks. Liquidity management is a means of optimizing operations while anticipating risks, particularly those related to interest rates.

What is cash used for?

A company’s treasury is used to manage liquidity. Thanks to cash flow, the entrepreneur ensures that he has enough money at his disposal while taking into account bank interest, the exchange rate, as well as its fluctuation. Cash flow is useful to every organization that manages the flow of money.

A cash flow budget is essential for forecasting future cash flows. The cash balance can be positive when certain mandatory expenses such as rent have not yet been paid. However, the balance can be negative when receivables from customers have not yet been collected or customer cheques have not been added to the bank account.

Why is it important to manage a company’s cash flow well?

A company’s cash flow is not only used to assess a company’s health. It is the difference between the company’s assets and its current liabilities. A company must have enough cash to finance its day-to-day expenses. Indeed, cash is an indispensable element in the management of a company. It is an indicator of a company’s viability and sustainability.

Cash flow failures are one of the causes of a company’s bankruptcy. In the event of a suspension of payments, these problems may give rise to liquidation or receivership. Effective cash management is crucial for a company to be able to meet its commitments when its loans come due.