Cash Flow Management: Which Type of Measurement is Right for Your Business?Ink Well Mag May 9, 2016 0 COMMENTS
If you’re not doing a proper job of managing your business’ cash flow, you’re only setting up your business for failure. Although cash flow is among the most crucial financial measures that all business should monitor, not all businesses actually need to utilize every type of measurement.
Selecting the most appropriate metric is crucial, and to start, here are common ways for measuring cash flow as described by cash management services.
FCF or Free Cash Flow
FCF is the most common cash flow metric and it represents available cash your business has after capital expenses including equipment and loan payments. You can use your free cash to expand your service and/or product lines, repay outstanding debts, and enable you to pursue relevant activities that will aid in increasing your business’ value to your shareholders.
CFO or Cash Flow from Operations
This is accumulated cash from continuous, typical business activities. This is important since it factors in cash from sales, but excludes long-term capital expenses, so it’s especially beneficial for businesses with plenty of fixed assets such as equipment and buildings.
DCF or Discounted Cash Flow
This measurement is important for assessing future investment prospects. It does so comparing current capital expenditures against future projections of cash flow.
Cash Flow from Financing Activities
This measurement factors in external business activities that allow your business to repay debts and increase capital that by extension could be utilized for divulging your business’ financial strengths to current and potential investors.
LCF or Levered Cash Flow
This represents available cash flow your business has after repaying debts. This is critical to stockholders since it determines the amount of cash available for investment and distribution purposes.
UFCF or Unlevered Free Cash Flow
This refers to available money prior to taking into account debts and other financial responsibilities. It is an extremely useful metric for budgeting and accounting money.
Although it’s easy to say that yes, business is great and profitable, your business will simply perish if it lacks ample cash flow to buy goods for operations and pay off your employees. With this in mind, choose the most appropriate metric/s to measure your business’ cash flow, as well as professional cash management services to further help you out to make certain that your business will continue to prosper for many years to come.