Chemical Industry_Financial Cash Flow
Analysis
1. Analysis background introduction
This case comes from an agricultural
company headquartered in central China. Its main business is to plant and sell
high-value-added organic agricultural products. In recent years, the
competition in the domestic agricultural market has intensified. At the same
time, the planting cost has increased due to the impact of climate change and
policy regulation. Although the market demand for organic food has risen, its
production investment is relatively high, and enterprises are facing the
pressure of capital turnover.
2. Statement of key issues
Management faces the challenge of how to
balance business expansion and maintaining healthy cash flow:
Ensure that the cash flow of operating
activities is positive:Business expansion is
usually accompanied by large-scale capital expenditure and rising operating
costs, which may lead to a decrease in cash flow from operating activities, or
even a negative turn. This will affect the daily operating capital of the enterprise
and increase the dependence on external financing.
Control capital expenditure and expand
the pace: When expanding their business,
enterprises usually need a large amount of capital investment, such as the
construction of new facilities, technological upgrading or market expansion. If
these capital expenditures fail to produce the expected returns, they may cause
cash flow depletion and affect the liquidity of the enterprise.
Optimize the financing structure and
control the debt level: In order to support
business expansion, enterprises may obtain funds through loans or bond
issuance. However, over-reliance on external financing will increase debt
repayment pressure, resulting in the future cash flow of enterprises being
occupied by a large amount of debt repayment.
Improve cash flow forecasting and
management ability:Business expansion is often
accompanied by uncertainty, including market demand, fluctuations in operating
costs, and even changes in the external economic environment, which makes it
difficult to accurately predict the cash flow of enterprises.
Maintain a flexible reserve of emergency
funds:In the process of business expansion,
enterprises will face sudden capital needs, such as equipment failure, supply
chain problems or sudden growth in market demand.
3. Analyze the plan
Four key indicators in cash flow analysis:
cash balance at the beginning of the period, total cash inflow, total cash
outflow, and cash balance at the end of the period. It provides an overall
financial picture for the capital flow of the enterprise.
3.1 Determine the key indicators.
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Serial number
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Name of the indicator
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Paraphrase
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Analysis angle
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1
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Cash balance at the beginning of the
period
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The cash balance at the beginning of the
period is the total amount of cash and cash equivalents held by an enterprise
at the beginning of the analysis period (usually a quarter or a year). It
represents the starting point of the liquid funds that the enterprise can use
during the financial cycle.
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Liquidity guarantee: The higher the cash balance at the beginning of the period, the
stronger the risk resistance of enterprises in the face of sudden expenditure
or short-term liquidity needs. It reflects the previous operation and
management ability of the enterprise and the level of cash accumulation.
Cash management efficiency: If the cash balance at the beginning of the period is too high,
it may mean that the enterprise has failed to effectively use the excess cash
for investment or expansion; if it is too low, it means that the enterprise
may need to rely on external financing to maintain operations.
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2
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Total cash inflow:
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The total cash inflow is the sum of cash
obtained by the enterprise through various operations, investment and
financing activities during the analysis period.Common cash inflow items
include product sales income, loans received, asset sales income, etc.
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Income from business activities:The cash inflow of operating activities reflects the core business
health of the enterprise. The continuous high cash inflow means that the
enterprise has good market performance and sales refund ability.
External financing dependence:If most of the cash inflow comes from fundraising activities, it
indicates that the enterprise may need to rely on external financing to
maintain operations, and the potential debt repayment pressure may increase.
Return on investment:The cash inflow brought by asset sales or investment income can
improve the overall liquidity of the enterprise, but if it is a large-scale
asset realization, it may indicate that the enterprise needs to raise a large
amount of cash in the short term.
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2.1
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Customer's collection
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2.2
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Collection from related parties
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2.3
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Bank loan
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2.4
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Loans from related parties
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2.5
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Other cash inflows
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3
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Total cash outflow:
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The total cash outflow is all the cash
expenses incurred by the enterprise during the analysis period, including
operating costs, capital expenditure, principal and interest repayment and
dividend distribution.
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Cost management ability:The cash outflow in business activities is mainly reflected in the
procurement of raw materials, labor costs, leasing costs, etc., and the total
outflow should match the business scale. If the outflow is too large and the
income is limited, it indicates that the enterprise's cost management is not
good, which may affect the long-term business ability.
Prudence of capital expenditure:The large outflow of investment activities often reflects the
expansion and equipment renewal of enterprises. It is necessary to pay
attention to whether these capital expenditures will generate future returns.
In the short term, a large amount of investment expenditure will compress
cash flow and affect the short-term liquidity of enterprises.
Debt management and dividend strategy:Through cash outflows from financing activities, such as loan
repayment and dividend payments, the decision-making of enterprises in
capital management is explained.If the cash outflow of the enterprise is too
large and the repayment capacity is insufficient, it may lead to difficulties
in capital turnover and affect long-term financial health.
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3.1
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Pay to third-party suppliers
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3.2
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Pay to related parties
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3.3
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Provide loans to related parties
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3.4
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Capital expenditure
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3.5
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Salary, bonus and social insurance
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3.6
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Payment for services
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3.7
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Repay the bank loan
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3.8
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Office and warehouse lease
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3.9
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Inland freight
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3.10
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Sales expenses
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3.11
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Import duties and customs clearance fees
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3.12
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Income tax
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3.13
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Other taxes
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3.14
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Miscellaneous expenses
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3.15
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Total cash carry-over
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4
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Cash balance at the end of the period:
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The end-of-term cash balance is the total
amount of cash and cash equivalents held by the enterprise at the end of the
analysis period, usually the cash balance at the beginning of the period plus
net cash flow (total cash inflow minus total cash outflow).
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Mobility health status:The cash balance at the end of the period reflects whether the
enterprise has sufficient liquidity to meet future operating needs. A high
balance indicates that the enterprise has sufficient capital and strong
coping ability; a low balance may mean that the enterprise faces the risk of
tight cash flow.
Cash use efficiency:If the cash balance at the end of the period is relatively high
for a long time without obvious investment or expansion behavior, the
enterprise may not be able to make effective use of funds, and there may be
opportunity costs. If the end-of-term balance is too low, enterprises may
face the risk of insufficient ability to pay, especially when repaying debts
or paying for sudden expenses.
Long-term development plan:The cash balance at the end of the period should be matched with
the future investment, expansion and business plan of the enterprise.
Enterprises need to ensure the effective use of cash to promote future growth
and expansion while maintaining sufficient liquidity.
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Description: The indicators selected in
this case are common indicators in analysis. In the analysis work, priority
should be given to selecting the indicators that have the greatest impact on
the business to ensure that the purpose of the analysis is consistent with the
business objectives and key performance.
3.2 Power BI Visualization Scheme
Note: The DEMO page data is simulated data,
which is for reference only to the analysis angle and Power BI function
display, and does not involve any actual business data.
4. Analysis and interpretation
Mobility health status:The cash balance at the end of the period reflects whether the
enterprise has sufficient liquidity to meet future operating needs. A high
balance indicates that the enterprise has sufficient capital and strong coping
ability; a low balance may mean that the enterprise faces the risk of tight
cash flow.
Cash use efficiency: If the cash balance at the end of the period is relatively high
for a long time without obvious investment or expansion behavior, the
enterprise may not be able to make effective use of funds and there are
opportunity costs.If the end-of-term balance is too low, enterprises may face
the risk of insufficient ability to pay, especially when repaying debts or
paying for sudden expenses.
Long-term development planning: The cash balance at the end of the period should match the future
investment, expansion and business plan of the enterprise. Enterprises need to
be inWhile maintaining sufficient liquidity, ensure that cash is used
effectively to promote future growth and expansion.
5. Application effect
Through these four indicators, enterprises
can fully understand the operation of cash flow and apply them from the
following aspects:
Balance of cash flow:EnterpriseThe balance between cash inflows and outflows should be
ensured to avoid financial constraints caused by excessive or insufficient cash
outflows.
Reliability of cash flow from operating
activities: Cash flow from operating activities is
usually the most reliable source of cash for enterprises. Enterprises need to
ensure that this part is always positive and avoid over-reliance on external
financing.
Sustainability of investment and
expansion:Cash outflows from investment activities
often accompany the expansion of enterprises, but be alert to whether there is
enough cash flow to support these investment plans and whether these
investments can bring long-term returns.
Debt and financing risks: The cash inflow brought by fundraising activities is conducive to
the shortThe period is extended, but enterprises should control the debt level
and avoid long-term dependence on external funds to increase the pressure of
debt repayment.
Through these four cash flow indicators,
enterprises can not only monitor the current financial health, but also make
more reasonable plans and adjustments for the future use of funds.