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Journal number 4 ∘ Nana Sreseli Merab Jikia Rusa Sreseli
General aspects of cash flow statement analyze


The Companies are facing financial difficulties when portion of cash resources is decreased in the pool of current assets, while current liabilities are increased. 

The lack of minimal cash reserves runs the risk of covering company’s expenses. The surplus of cash resources indicates missed possibility of benefit from investing of this cash resources.

The above mentioned problem can be solved by analyzing of financial resources and evaluate sufficiency of cash resources; Specifically calculation of minimum balance of cash resources evaluation of synchronicity of inflow and outflow cash recourses along with company’s ability to generate cash. The article contains important discussion about evaluate of net cash resource’s general structure and separately for each type of company’s activity; along with importance of cash flow statement analyze in respect of identifying company’s solvency and liquidity. 

The importance of analyzing cash resources for the purposes of managing in this area is also discussed in provided article.

Key words: Net cashflow, free cashflow, solvency, liquidity ratio, the ratio of Beaver, money-turnover ratio, the ratio of cash to the dock, net investment coverage ratio.

General part

The statement of cash flow contains information, not outlined in other statement of financial position. 

One of the general principle of company’s welfare is inflow of cash recourses required to cover planned expenses.

Analyze of cash resources includes important management information for company’s management, shareholders, and investors.  The company’s management can control solvency, receive timely decision and evaluate additional investment ability based on such analyze.  Such information give chance creditors and shareholders receive well founded decision related to profit sharing.

All the ways of cash inflow and outflow should be identified and analyzed in order to understand real movement of cash resources within the company, evaluate synchronicity of cash inflow and outflow.

The most well-known way of controlling cash resources in forming the budget within the company in order to identify cash inflow and outflow and avoid any lack of cash or surplus at bank account.

The cash flow statement includes three type of activity related to cash, such as cash from current activity, investment activity and financial activity.

The cash inflow from current activity related to income from sale of goods or service, receiving advance payment from customer; cash outflow relates to covering accounts payable, salary liabilities, payment of taxes, bank credit and/or other liabilities.

Cash flow from investment activity related to sell or purchase of long term assets, such as fixed assets, intangible assets and other long term financial investment.

The financial activity covers cash flow related change of company’s own and borrowed cash resources, such as share disposal, stock issue, income from stock disposal and etc.

Net Cash flow – Result of cash flow change (difference between inflow and outflow for each type of activity separately and totally for whole period).

During analyzing of cash resources the information should discard internal cash transaction and movement, as such transfers are not treated as inflow or outflow based on international accounting standards.

The important indicator of cash statement is cash result from current activity or net cash resources from current activity. The company’s ability to generate cash can be evaluated based on this indicator.  That’s why it is important separately to analyze cash from current activity as company’s chance to operate without borrowing financial resources.

The variation of cash resources can be positive, the company may have sufficient liquidity coefficient and at the same time negative index of net cash from current activity. This means that current activity results outflow of cash resources, and inflow is result of investment or financial activity. Prolongation of such negative index for couple of periods can result company solvency problem.

Information included in cash flow statement can be used for analyzing couple of indicators characterizing solvency issues.  The formula for calculation one of the solvency indicator is below:



Analyze of solvency indicators provide important information whether company can cover expenses based on available cash resources and future inflow of cash.   In order to avoid solvency problem result calculated using above mentioned formula should not be less than 1.

Another coefficient of solvency is Beaver ratio which is calculated in the following way:


The average value of liabilities are used for calculation of Beaver. The recommended index of this coefficient is between 0,17-0,4.

If index is less than recommended the solvency risk is evaluated as high, if within interval the risk is medium sized, if more than 0,4 the solvency risk is estimated as low.

Interest covering 

This indicator assist to evaluate company’s ability to serve borrowed cost and pay interest payable.

As such cash flow statement provide information regarding changes occurred within company’s net assets, financial structure, and company’s ability timely to react on lack or surplus of cash resources.

Despite that fact that companies are having different activity, the cash resources are required for identic targets, specifically purchase assets, cover liabilities, pay salary, taxes and etc. The following information can be received from Analyzing of cash resources: 

  • The source of cash inflow and further direction of usage
  • Does company has ability to cover expenses using cash inflow from current activity
  • Sufficiency of funds for investment activity and payment of dividend
  • The company’s dependence on borrowing cost and their importance in sustaining company’s financial stability
  • Prognoses of future cash movement and ability to usage.


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