The important position of cash flow

Although China has required listed companies to disclose cash flow information in their annual reports since 1998, at present, the management of cash flow in most domestic enterprises is still limited to ratio analysis and trend prediction based on the relevant information in the cash flow statement, which is far from meeting the objective requirements of the market environment for enterprises. This paper attempts to analyze and discuss the connotation, function and content of cash flow management from the perspective of the whole business process of enterprises, and puts forward corresponding countermeasures and suggestions to improve cash flow management in combination with the current business situation of Chinese enterprises.

First, the status of cash flow management in enterprises

1, strengthening cash flow management is the basic requirement of enterprise survival. Every enterprise has its own different stages of development and different cash flow characteristics. Therefore, effective cash flow management measures can be taken according to the characteristics of different stages of its operation to ensure the survival and normal operation of enterprises. Otherwise it will have a fatal impact on the survival of enterprises. For example, in 1975, W. T. Grant, one of the largest commercial enterprises in the United States, declared bankruptcy. In the year before its bankruptcy, its operating net profit was nearly10 million US dollars, its operating activities provided more than 20 million yuan of working capital, and bank loans reached 600 million US dollars. 1973, the company's share price is still sold at 20 times the income. The reason for the bankruptcy of this enterprise is that the net cash flow of the company has been negative for five years before bankruptcy. Although there are high profits, the company's cash can't pay huge productive expenses and debt expenses, which eventually leads to "growth bankruptcy".

2. Strengthening cash flow management can ensure the healthy and stable development of enterprises. In the past, the indicators for evaluating the development ability of enterprises were profit and income. However, because the measurement method of profits can be manipulated artificially, some enterprises will reduce the cost of product development and research in order to increase profits, and these cost reductions will only affect the long-term interests of enterprises. And cash flow makes up for these deficiencies. Free cash flow can reflect the overall payment ability of enterprises, and equity cash flow can truly reflect the actual payment ability of enterprises. The two indicators comprehensively reflect the enterprise's own ability to pay and its ability to repay its stakeholders, which is a comprehensive embodiment of the enterprise's development potential. Therefore, in the planning meeting in 2003, China Unicom made it clear that the free cash flow of enterprises was an important index to evaluate the development of its branch.

3. Strengthening cash flow management can effectively improve the competitiveness of enterprises. With the increasingly fierce market competition, enterprises are required to constantly strive for innovation and speed in production and operation, and adjust the production technology of products in time to meet the changing requirements of consumers. In this competitive background, the liquidity of cash is the most important factor to determine the running speed of enterprises. Through the management of cash flow, enterprises can maintain good cash liquidity and improve the efficiency of cash use, thus transforming funds into productivity in time and improving the competitiveness of enterprises.

Second, grasp the operation process of cash flow management as a whole.

As we all know, as a value chain of resource transformation and appreciation, modern enterprises involve the inflow and outflow of funds in the whole workflow from market research, R&D design, procurement and production, inventory sales to after-sales service. Therefore, the goal of modern financial management is not only reflected in the accounting treatment and report analysis afterwards, but also in the comprehensive capital budget, decision support, monitoring during the event, summing up and adjusting afterwards. Therefore, it has become the core task of enterprise financial management to control and manage the cash flow in the whole workflow.

1, cash flow management in production and operation

In the production process, the main function of cash flow management is to ensure the safety of production and operation funds, shorten the cash conversion cycle and improve the efficiency of capital use. Mainly in the following aspects:

(1) Inventory turnover period management: In production and business activities, timely management is usually adopted to manage inventory turnover period, which can reduce inventory, product inspection, rework of defective products and unnecessary backlog of raw materials.

⑵ Cash payback period management: The enterprise must have a special person to check every working procedure from obtaining the order to receiving the payment. Encourage customers to pay in advance, and there should be someone to follow up the overdue payment. Accelerate cash recovery and shorten the cash recovery period.

⑶ Payment cycle management: The longer the payment cycle, the better. If the payment is too late, the enterprise will lose credibility, damage the relationship with suppliers and may lead to the loss of potential discounts.

2. Cash flow management in enterprise financing activities

In the fund-raising activities of enterprises, cash flow management mainly focuses on the following aspects:

(1) Forecast cash flow and make financing plan. Enterprises can forecast short-term cash flow according to the cash flow statement, which is the most commonly used method in cash forecasting, which is helpful for daily cash management and makes short-term management plans according to the forecast results. The forecast based on balance sheet and income statement is the forecast of long-term cash flow of enterprises, and calculating the surplus or shortage of funds after several years is helpful to the formulation of long-term strategic planning of enterprises. In this way, enterprises can make a more comprehensive financing plan.

⑵ Grasp the financial situation and judge the solvency. When making a financing plan, enterprises should fully consider their short-term and long-term solvency to avoid cash liquidity problems in financing activities and affect the normal production and operation activities of enterprises. Enterprises can usually use the method of ratio analysis to measure their short-term and long-term solvency by calculating cash maturity debt ratio, cash current debt ratio and total cash debt ratio.

3. Cash flow management in enterprise investment activities. The cash formed by investment activities of enterprises mainly includes cash obtained from investment recovery, dividend distribution and bond interest, as well as cash paid for the purchase and construction of fixed assets, equity investment and creditor's rights investment. When an enterprise makes an investment decision, it must be clear whether the expected future income under foreseeable risks is greater than the current expenditure. Cash flow management at this stage is mainly:

(1) Estimate the investment risk and ensure the safety of funds. When an enterprise makes an investment decision, it must first estimate the funds needed to maintain its daily operations and the future uncertain expenditures, and then the cash surplus enterprises formed on this basis will invest. For the selected investment object, by analyzing the financial information provided by the investment object, especially the free cash flow of the enterprise, we can understand the financial policy, profitability, sustainable development ability, risk and present value of funds of the invested enterprise, so that the investment enterprise can have a certain understanding when judging the return ability of the investment object. Objectively improve the security of funds.

⑵ Ensure capital efficiency through investment evaluation. When making investment decisions, we must consider whether future income is greater than investment expenditure, that is, the time value of money. Enterprises can use many methods to evaluate investment decisions, but all methods are basically based on cash flow, such as cash flow discount method and net present value method. Generally speaking, it is feasible to invest in a project if its net present value is greater than zero.

Thirdly, the countermeasures and suggestions of cash flow management in Chinese enterprises.

To sum up, in the current fierce market competition environment, enterprises must strengthen and rely on effective cash flow management to survive and develop. However, the cash flow management of Chinese enterprises is still at a very low level. The vast majority of enterprises still implement the management method of handling current receipts and payments settlement according to the cash expenditure scope and bank settlement system stipulated by the state, with experience and internal containment system as the main body. The author believes that the following measures can be taken to improve the cash flow management level of Chinese enterprises.

1. Cultivate management's awareness of cash flow management. The basic premise of cash flow management is that the company's leadership has a good sense of cash flow management, which comes from the management innovation of modern enterprise system, represents the latest enterprise financial management concept, and is the inevitable trend of the development of modern multinational companies. Decision-makers of enterprises must have sufficient knowledge of cash flow management, examine the cash flow management activities of enterprises from the perspective of enterprise strategy, and provide organizational basis for ensuring the improvement of cash flow management level of enterprises.

2. Establish a cash inflow and outflow management system and a systematic control framework for cash flow management. When carrying out cash flow management, enterprises must formulate an effective centralized cash flow management system and establish a framework system for cash management. In this way, enterprises can make management reports and budget and budget control reports regularly, feedback the cash management situation in time, and make corresponding adjustments. So that the financial changes brought by each workflow can be accurately and timely reflected in the cash flow, so as to evaluate the business decision of the enterprise. Secondly, when an enterprise develops around the core of "cash flow management", it will inevitably involve the re-integration and unification of the whole enterprise's workflow, which will undoubtedly make timely and accurate judgment and control of the internal and external information of the enterprise from a strategically advantageous position, which will greatly help improve the modern management consciousness and level of China enterprises.

3. Establish corresponding organizations and strengthen the supervision and management of cash flow. Due to some human factors, such as misjudgment, carelessness, collusion and fraud, the management system can not play an effective role. In view of these situations, enterprises should implement cash management to every department and every employee under the regular supervision of managers, so as to ensure that every link of cash management is managed by someone, and there is no uncertain area where no one wants to manage it. At the same time, establish corresponding reward and punishment mechanism to arouse the enthusiasm of employees. Only cash flow management based on enterprise framework system is comprehensive cash flow management.

4. Establish a management information system with cash flow management as the core. Enterprise management informatization is a necessary means for multinational companies in the world to cope with global integration and information world. According to statistics, 80% of the top 500 enterprises in the world have adopted the management information system of enterprise resource planning (ERP). Starting with the establishment of the enterprise financial information system platform, the production management process of the enterprise is integrated, and the information flow, logistics, capital flow and workflow of the enterprise are integrated, so that managers can obtain all kinds of financial and management information of the internal and external operations of the enterprise in a timely and accurate manner. Only by changing the financial management of an enterprise from the traditional bookkeeping, accounting and report making to the active operation of financial control, project budget, fund operation, business development and decision support, can we truly predict and grasp the inflow and outflow of cash flow, take "cash flow management" as the innovation core of financial management, organically integrate workflow and financial management, seize the opportunity of information networking, realize the leap-forward development of enterprise management, and truly improve the core competitiveness of enterprises.