About effective cash flow management of the company

Abstract

Managing company’s cash flow is part of the financial activities that are important to the overall stability of the business. Competition between companies makes it difficult to increase profit as well as maintain positive cash flows. While the main goal of companies is to increase profit and market share, less attention is paid to forecasting and managing cash flows. Cash flow is a driving force for any company and developing the right management strategy is vital to any sector of the economy. The aim of the research is to discuss the theoretical-methodological aspects related to cash flow management and to evaluate the factors affecting cash flow in order to improve the company’s cash flow management. Based on the consideration of cash flow measurement and reporting methods, we can say that these methods differ from each other only by the specifics of calculating cash flows obtained from operating activities. If the direct method of incoming and outgoing cash flows occurs directly, in the indirect method, the financial result of the company, profit, is adjusted for non-cash items and we receive the net cash flow. This method is much more informative for the company’s management as it shows the relationship between the profit earned and the cash flow. A review of money management models allows us to say that the advantages of the Miller-Orr model over the Baumol model lie in the realistic assumptions, namely that the Miller-Orr model does not allow an equal amount of cash flow to be found in the Baumol model. Conversely, the Miller-Orr model assumes that cash flows fluctuate over time, which is, of course, much more realistic. Therefore, this model is more usable than the Baumol model.