Optimization of the company's cash flow

A good financial situation is characterized by the ability to maintain a level of liquidity sufficient for the turnover in
order to ensure the solvency of the company. It is the result of the opposition between the liquidity of the assets and
the payment of debt. That is why one of the fundamental concerns of the financial manager is the control of the
financial equilibrium of the firm. The Working Capital Fund and the ratios are the most commonly used balance
measuring instruments. But controlling the financial balance through these instruments remains insufficient to
explain it. Also, should complete this first analysis by financial movements that led to the fund balance. This second
analysis allows to enjoy the cash position at a given time, to anticipate movements to come, and hence, have the
necessary information to where appropriate, take the necessary corrective actions.
SECTION 1: THE CONTROL OF THE FINANCIAL BALANCE.
The control of the financial balance is limited in general to the consideration of the Working Capital Fund and the
calculation of a number of ratios.
I - THE WORKING CAPITAL FUND, INDICATOR OF THE FINANCIAL BALANCE.
All the instruments of assessment of the financial situation of a firm, working capital is most often used by both the
executives of the company and its bankers. But this notion gives rise to a plurality of definitions whose vagueness is
a frequent source of ambiguity and confusion. The Working Capital Fund is part of the permanent capital which
finances the operating cycle. It expresses the "ability to cash" of the firm and appears as the source of funding of the
cash requirements.
A - THE FUND OF WORKING CAPITAL, TOOL OF FINANCING THE CASH REQUIREMENTS.
According to the basic and traditional financial balance principle. The different values of assets must always be
funded by capital remaining at the disposal of the firm for a time at least equal their life expectancy. Thus capital
constituting by definition of the long term jobs should not be financed by short-term loans might not be re-appointed
or disappearing themselves.
However this balance is fragile. Need to consolidate as a margin of safety: the Working Capital Fund.
1 - THE DETERMINATION OF THE WORKING CAPITAL FUND.
Working capital is calculated in two ways
Permanent capital on net surplus assets;
Current assets - short term (after allocation of profit) debts.
1.1 - THE REFERENCE TO PERMANENT CAPITAL.
The existence of a positive working capital means that a portion of current assets is supported by long term capital
The requirements of bearings are the part of the cyclical needs whose funding is not provided by cyclic resources but
by the Working Capital Fund, and, if the WCF is insufficient by short-term loans. The array of needs and resources
can then be written as follow in table n°1:
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