Cash comes to any business from different sources such as payment from the customers, investments, loans and from different other sources. Apart from this, the cash can be gone out from a business through different process such as payment to the suppliers, distributers, employees and others. The cash in and cash out to a business is termed as cash flow. The cash flow is important for a business organization to run its business activities. Therefore, an organization needs to focus on its cash flow structure to enhance the performance of a business. Apart from this, it needs to find out the extra expenditure of a business to cut it down and to enhance its profit margin. In this process, a business organization needs to develop a cast flow statement in order to find out the cash in and cash out off a business and along with it to make the financial statement of the business for every financial year.
Discounting factor helps to get appropriate result in financial budgeting, which is made for long term. In his regard, it is to mention that the discounting factor has been applied in this case to calculate the value of cash inflows. The discounted factor in a cash flow is important in order to increase the opportunities of investment in a business. In order to recognize the net present value of future returns, it is necessary to calculate the discounting factor for a certain period of time. In this case, the discounted cash flow has been calculated by considering the required rate of return of 8%.
According to the above table it can observed that the firm has been operating the practices of evaluating the practices of discounting cash flow operations during the year. The valuations of the cash flows refers that the cash operations of the firm has been on a positive note.
b. Total value of cash flow has been recorded as £ 6,689.42. Now, calculating if the cash flow will grow at 3 percent after 2009 then it will be calculated as, £ 6,689.42*3%= £ 200.6826.
In the above table, the calculations of the cash flows during the year have been done in order to evaluate the margins of the cash inflows and outflows during the year. The cash flows have been observed to be in increasing trend, which identifies the high rate of cash inflows during the year. In this context, it is to be stated that the simple cash flow statement is made by considering the cash flow from operating activity, cash flow from investing activity and cash flow from financing activity. In this case study, it has been seen that the cash flow statement has been calculated after considering these activities. In the operating cash flow statement, the cash flow from the primary business activity has been calculated. On the other hand, it is to be stated that the investing activity refers to the trading investment made by the company in a certain accounting period, and therefore the cash flow from investing activity of the company has been calculated by considering net cash flow from purchase and sales of trading investment. Finally, the calculation of the cash flow from financing activity has been calculated after considering the payment of divided and interest.
According to the above table, it can be observed that the firm has evaluated the simple cash flow along with the free cash flow for the financial years. It is o be mentioned that the firm has obtaining financial practices which has resulted in a fluctuations of the cash flow margins. It is observed that the cash flow margins have been in a decreasing trend and generating excess outflow of cash during the year. Free cash flow is calculated by considering the operating cash flow of an organization. In this regard, it is to be added that the free cash flow helps to identify the profit available to the shareholders from the operating activity. In addition to that it is also to be stated that the free cash flow is calculated by deducting the capital expenditure made by an entity from the cash flow from operating activity.
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