FACULTY OF BUSINESS SCIENCES

ACCOUNTING SCHOOL

ACADEMIC REPORT
IMPORTACIÓN

COURSE:

Strategic Financial Planning

TITLE:

Cash flow

AUTHOR:

Benites Benites, Noel Carlos Benites

TEACHER:

Dr. Gonzales Gomez, Francisco Jose

Callao - Perú

2024
 INDEX
I. Introduction ............................................................................................................................... 1
1. Objectives ................................................................................................................................... 2
1.1 General Objective ................................................................................................................. 2
II. Development .............................................................................................................................. 2
2.1 Research content ..................................................................................................................... 2
2.2 Types of cash flows .................................................................................................................. 3
3. How do cash flows differ from revenues? ................................................................................ 3
4. What is the difference between cash flow and profit? ............................................................ 3
5. What is free cash flow and why is it important? ....................................................................... 3
6. Why is the price/cash flow ratio used? ..................................................................................... 4
7. Conclusion .................................................................................................................................. 4
III. Bibliography ........................................................................................................................... 4
 I. Introduction

Cash flow is a key financial concept for assessing the liquidity of a company or
project. In simple terms, cash flow represents an organization's cash inflows and
outflows over a specific period. This financial indicator allows companies to have a
clear view of their ability to generate cash through their activities, whether through
operations, investments or financing. A detailed understanding of cash flow is
essential for strategic decision making, as it reflects the company's ability to meet
its financial obligations, such as debt repayment, reinvestment in operations and
distribution of profits to shareholders.

Cash flow management is essential to ensure the financial health of a company.

The reason is that a company can have good revenue levels and be profitable on
paper, but if it does not have sufficient cash flow available, it may face difficulties in
operating on a day-to-day basis. Cash flow planning and control makes it possible
to anticipate liquidity problems and helps to take preventive measures to ensure
operational continuity. This becomes particularly important in contexts of high
economic uncertainty, where the company's ability to adapt to unexpected changes
in the environment depends to a large extent on its liquidity strength.

There are several types of cash flow, each with a specific focus on business
activities. Among the most common are operating cash flow, investing cash flow and
financing cash flow. Operating cash flow reflects the cash generated or used in core
business activities, such as sales and operating expenses. This is a crucial indicator,
as it shows whether the company generates.

Detailed cash flow analysis allows managers and investors to gain an in-depth view
of a company's financial condition and cash-generating capacity, beyond the
profitability reported on the income statement. It also provides a measure of security
for financing decisions, as cash flow projections help determine the amount of debt
a company can take on without jeopardizing its liquidity. Thus, cash flow is not only
a diagnostic tool, but also a strategic guide for financial sustainability and long-term
value creation.

pág. 1
1. Objectives

1.1 General Objective

Guarantee the company's financial sustainability through the efficient management

of its cash inflows and outflows, to ensure liquidity and solvency in the short and
long term, thus enabling the continuity of operations, compliance with obligations
and the ability to take advantage of growth and investment opportunities.

1.2 Specific Objectives

• Ensure that the company has the cash necessary to meet its daily financial
obligations, such as payments to suppliers, salaries, taxes and other short-
term commitments.

• It helps to assess whether the company is in a position to finance these

investments with its own resources or whether it is necessary to resort to
external financing.

II. Development

2.1 Research content

According to Ross et al. (2021) free cash flow provides a more accurate view of the
financial health of the firm, as it removes the effects of accounting decisions and
shows the cash actually available to shareholders

Therefore, cash flow is essential for assessing financial viability, managing risks and
making informed decisions on resource allocation. Without proper cash flow
management, companies may face difficulties in covering their expenses, which
could affect their stability.

pág. 2
 2.2 Types of cash flows

• Cash flows from operations (CFO)

Describes cash flows directly related to the production and sale of goods from
ordinary operations, as well as net cash from operating activities, the CFO indicates
whether or not a company has sufficient funds to pay its bills or operating expenses.
It is calculated by taking cash received from sales and subtracting operating
expenses that were paid in cash during the period.

• Cash flows from investments (CFI)

reports how much cash has been generated or spent from various investment-
related activities in a specific period. Investing activities include purchases of
speculative assets, investments in securities or sales of securities or assets.

• Cash flows from financing (CFF)

show the net cash flows used to finance the company and its equity. CFFs are also
commonly referred to as financing cash flows. Financing activities include transactions
involving the issuance of debt or equity and the payment of dividends.

3. How do cash flows differ from revenues?

Cash flow refers to the amount of money flowing in and out of a company, while revenue
represents the income the company earns from sales of its products and services.

4. What is the difference between cash flow and profit?Again, cash flow simply
describes the flow of cash in and out of a company. Profit is the amount of money the
company has left after subtracting its expenses from its revenues.

5. What is free cash flow and why is it important?

Free cash flow is the money left over after a company pays its operating expenses and any
capital expenditures. Companies are free to use free cash flow as they wish. Free cash flow
is considered an important measure of a company's profitability and financial health.

pág. 3
6. Why is the price/cash flow ratio used?
The price-to-cash flow (P/CF) ratio compares a stock's price to its operating cash
flow per share. P/CF is especially useful for valuing stocks that are cash flow
positive but unprofitable due to large non-cash charges.

7. Conclusion
The first step to ensuring healthy business growth is to understand cash flow, the
difference between cash flow and profit, and the purpose of each. Manage day-to-day
operational processes Small business owners will find that proper cash flow
management is essential. Earnings and cash flow are two financial concepts that help
a business make informed and viable decisions. The more you keep up with the books,
the easier it will be to predict cash flow problems. A profitable company is one that not
only makes an overall profit, but also manages cash flow successfully.

III. Bibliography

Cash flow | business.gov.au. (s. f.). business.gov.au. https://business.gov.au/finance/cash-

flow

Cook, B. (2024b, noviembre 3). Cash Flow Definition: ¿What is Cash Flow? | Tipalti.

Tipalti. https://tipalti.com/resources/learn/cash-flow/

Finanzas corporativas. 1a Ed. Eugene F. Brigham y Michael C. Ehrhardt. Cengage.

(2016, 5 diciembre). Issuu. https://issuu.com/cengagelatam/docs/brigham_issuu

Fundamentos de administración financiera - Cengage. (2024, 29 febrero). Cengage.

https://latam.cengage.com/libros/fundamentos-de-administracion-financiera-2/

pág. 4
Hayes, A. (2024b, octubre 8). Cash Flow: What It Is, How It Works, and How to Analyze

It. Investopedia.

https://www.investopedia.com/terms/c/cashflow.asp#:~:text=Cash%20flow%20is%

20the%20movement%20of%20money%20in%20and%20out,a%20certain%20peri

od%20of%20time.

pág. 5