Optimization of the company's cash flow

The liquidity of a company is a temporal phenomenon: the cash receipts and disbursements ranged in time. «Kinetic»
ratios reflect this factor. They measure the rotation of the main components of the operating cycle: stocks,
customers, suppliers. With regard to inventories, calculate the following ratios:
For an industrial company the rotation of raw stock is expressed by:
AVERAGE STOCK OF MATERIALS OF THE YEAR / MATERIALS CONSUMED OF THE YEAR
By multiplying the result by 360, we get the number of days during which the stock covers the needs. Such a ratio
appropriate to determine the rotation of current products.
When the rotation of products, it is the result of the ratio:
AVERAGE STOCK OF FINISHED PRODUCTS VALUED AT COST PRICE / YEAR COST OF PRODUCTS SOLD IN
THE YEAR
Multiplied by 360, it gives the average time in days, necessary for the marketing of finished products. This ratio is an
index of potential ease of cash to the extent, in fact, where it indicates the time required for the stock turns into
receivables, and, therefore, in availability. Its meaning is much more reliable in the case of commercial enterprises
than in the case of industrial enterprises. A breakdown of costs by nature is always difficult to achieve. Moreover, it
will only sometimes the ratio:
AVERAGE INVENTORY AT COST / TURNOVER H.T.
The finished product sold gives rise to claims that the time limit for processing cash is provided by the ratio:
CLAIMS AGAINST CUSTOMERS OF YEAR-END 360 X / ANNUAL SALES INCLUSIVE OF TAX (T.T.C)
That can occur in a more refined way as follows:
(CLAIMS / TURNOVER INCLUSIVE OF TAX OF THE LAST QUARTER)
X 90 (D)
The comparison of the period of Regulation granted to customers at the time of credit grant providers to get an idea
on the cash position.
The item 'suppliers' turnover ratio will be calculated in the same way:
Or even better:
(VENDORS + NOTES PAYABLE / PURCHASES INCLUSIVE TAXES) X 360 J.
(SUPPLIERS (VENDORS) + NOTES TO PAY) / PURCHASES INCLUSIVE TAXES OF LAST QUARTER
The cash balance is a perfect 'harmony' between rotation of stocks, clients’ debts and suppliers’ debts, ceteris
paribus (1). Inside this company, they complement this list by the calculation of other kinetic ratios such as:
That indicates the potential for liquidity on equity,
ANNUAL SALES H.T / EQUITY
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