Cash flow management services
Service
DANEROCK Investment Group offers:
• Investment financing from €50 million and more
• Minimizing the contribution of the project promoter
• Investment loan term up to 20 years
• Loan guarantees
Sector
✓ Project finance and investment consulting from DANEROCK Investment Group:
• From €50 million and more.
• Investments up to 90% of the project cost.
• Loan term from 10 to 20 years.
Due to the ongoing process of globalization and increased competition, companies have to work in an environment of risk and uncertainty, which requires better management of cash flows and financial activities in general.
Recent events in the financial markets have shown that even the financial giants do not always meet the requirements of the economy of the 21st century.
Managing a business in an era of change is becoming increasingly difficult, especially in the context of large investment projects.
This requires high-quality operational information.
Until recently, managers and analysts relied on balance sheet and income statement data.
Today it is clear that the information needs of business are changing. As project financing become more complex, management teams need to expand their sources of information accordingly and introduce new methods for analyzing them.
ESFC Investment Group is ready to offer your business comprehensive services in the field of financial modeling, project management, investment engineering, etc.
We provide long-term loans for large projects in the field of renewable energy, heavy industry, mining and processing of minerals, infrastructure, real estate, tourism and etc.
Contact our representatives to find out more.
Displaying a company's business activity in a cash flow statement
The key source of information about the financial resources of a business is the cash flow statement, which is an underestimated element of financial reporting.
This document includes complete data about cash flows and cash equivalents, such as highly liquid assets that can be converted into cash within a short period of time.
It presents the amounts and sources of funds and shows the direction of their use in each segment of activity (operating, investing and financing).
Operational activity (production, trade, service) is the main activity of companies in the real sector of the economy. It includes any activities that are not classified as investment or financing activities. This segment includes all economic events related to the company’s core business that result in cash inflows or outflows. Investment activity refers to the purchase or sale of non-current assets, short-term financial assets and all related income and expenses.
Financial activity is the search / acquisition or loss of sources of financing, as well as all related income and expenses.
This applies to changes in the ratio of equity capital and external capital.
Information on cash flows in different areas of activity is useful for a comprehensive financial assessment of the company in past and current periods, and therefore can be considered an ideal model of the overall financial health of the enterprise.
Each activity can have positive or negative cash flows, as shown in the table below. Surplus funds from operating activities means that the revenue from the sale of goods or services exceeds the cost of purchasing materials, paying wages and other expenses. This situation is certainly beneficial for the company and shows the possibility of obtaining cash from operating activities.
When operating expenses become higher than revenues, there is a cash deficit.
This may indicate problems with receivables, the accumulation of unnecessary stocks of goods or the repayment of debts formed as a result of the implementation of large investment projects.
Table: Types of company / project cash flows.
| Description | Operating activities | Investment activities | Financial activities |
| Inflows | + | + | + |
| Outflows | – | – | – |
| Net cash flow | + / – | + / – | + / – |
Positive cash flows from investing activities may indicate the sale of assets, securities, or interest and dividends received.
In this case, it is difficult to say whether this situation is positive or negative for the company. Negative net cash flows from investing activities may indicate the active use of funds in the development of the company or investments in financial instruments, which is a positively sign. In financial management, a surplus of funds can indicate the attraction of sources of financing, while the opposite informs about the increased debt service costs.
Information about the cash flows in different areas of the company’s activities is a valuable tool for financial and investment decisions.
They allow the finance team to assess the structure and level of financing for each area, and also help assess the need to attract additional funds to finance large investment projects or maintain the balance.
The value of net cash flows in itself does not have sufficient information content. For management and analysts, the values of cash flows determined for certain operating areas are important. The life cycle phase is also of great importance in cash flow analysis. In the maturity phase of a company’s life cycle, operating activities generate positive cash flows sufficient to finance other activities.
The role of cash flow management in large investment projects
The cash flow statement provides information on the cash flow of the enterprise, which is an integral part of business management in general and individual projects in particular.
Today, project management is defined as a continuous process of making decision, the accuracy of which largely determines the effectiveness of investments. Cash flows clearly reflect the economic impact of each investment and can be used to compare alternative projects.
The most important advantage of the cash flow statement and the traditional income statement is the way they are compiled.
The income statement is compiled based on the results of a certain period, regardless of the moment of inflow or outflow of funds, which means that its role is limited.
The financial result achieved by the company informs about the effectiveness of management, which is expressed in an increase in equity capital. However, this indicator is not enough for decision making. To better understand the strengths and weaknesses of an investment project, it is necessary to refer to information on the actual inflows and outflows of funds in a given period.
Monitoring cash flows allows an enterprise to maintain an adequate amount of cash and cash equivalents to meet current liabilities.
Cash flow information complements the balance sheet and income statement, making it more useful for analysis. Cash flows are categories that are quite objective and resistant to the impact of accounting policies, which allows you to more effectively compare the effectiveness of investment projects / enterprises in different conditions. This information is often used as an indication of project reliability and future net cash flow projections.
The importance of the cash flow statement among business managers is increasing. In Europe and the US, many CFOs are turning to cash flow reports to make better investment decisions.
Cash flows can be considered ex post (reporting aspect) and ex ante (decision making aspect).
The structure, principles and application of business strategies are based on reliable and complete information about the business situation and understanding of significant changes in this situation.
Table: Distribution of project cash flows by levels.
| Level | Interpretation |
| Level 1 cash flow | Direct calculation method: operating income is deducted from operating expenses. A positive value expresses the financial surplus generated in the current operating activities, and a negative value indicates a shortage of funds and the need to use additional sources of financing. |
| Level 2 cash flow | The surplus / shortage of funds from investing activities is added to the level 1 cash flow. A positive value means that the investment activity is financed from equity, while a negative value means that the investment activity is financed from external sources. |
| Level 3 cash flow | The surplus / shortage of cash from financing activities is added to the level 2 cash flow. This indicator represents the ultimate cash surplus (shortage) generated by the company (project) during the period considered. |
Monitoring the financial position on the basis of cash flows allows management to respond to the first signs of a cash shortage, and in the event of a cash surplus, rationally allocate funds to assets.
This contributes to the implementation of the strategic goal of the business, maximizing the value of the company.
Standard cash flow metrics can be used to assess a project / company’s ability to generate cash surpluses and assess the need for financial resources.
The effectiveness of business management largely depends on the quality of financial management processes, which must be planned, combined and analyzed in terms of cash flows. Financial management of the company is closely related to the control of liquidity and solvency. In addition, the cash flows illustrate the company’s self-financing potential. Part of the generated cash flow can be used for investments, repayment of loans, replenishment of inventories, thus maintaining solvency.
That is why many investment experts claim that cash flow is a better indicator of financial potential than net financial result.
Professional cash flow management allows management and potential partners to evaluate the dynamic financial liquidity, making conclusions about the efficiency of the project / company.
This greatly increases the chances of raising the necessary capital on adequate terms.