{"id":6376,"date":"2020-02-19T13:39:08","date_gmt":"2020-02-19T13:39:08","guid":{"rendered":"https:\/\/satriun.com\/article\/cash-flow-accountability-three-quick-wins-to-turn-fiction-into-fact\/"},"modified":"2020-02-26T20:44:50","modified_gmt":"2020-02-26T20:44:50","slug":"cash-flow-accountability-three-quick-wins-to-turn-fiction-into-fact","status":"publish","type":"article","link":"https:\/\/satriun.com\/nl\/article\/cash-flow-accountability-three-quick-wins-to-turn-fiction-into-fact\/","title":{"rendered":"Cash flow accountability \u2013 three quick wins to turn fiction into fact"},"content":{"rendered":"

[et_pb_section fb_built=”1″ module_id=”header-section” _builder_version=”3.22.4″ background_color=”#005286″ background_image=”https:\/\/satriun.com\/wp-content\/uploads\/2020\/02\/cashflow-accountability.jpg” background_position=”top_center” top_divider_height=”0px” top_divider_arrangement=”above_content”][et_pb_row admin_label=”Row” _builder_version=”3.22.4″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”2_3″ _builder_version=”3.0.47″][et_pb_code module_class=”white-text” _builder_version=”3.22.4″]article<\/pee><\/p>\n

Cash flow accountability \u2013 three quick wins to turn fiction into fact<\/h1>\n

[\/et_pb_code][\/et_pb_column][et_pb_column type=”1_3″ _builder_version=”3.0.47″][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ module_id=”lightblue-overlay-section-first” _builder_version=”3.22.4″ top_divider_height=”0px” top_divider_arrangement=”above_content”][\/et_pb_section][et_pb_section fb_built=”1″ module_id=”intro-section” _builder_version=”3.22.4″ background_color=”#edf5fa” custom_padding=”|||||” top_divider_height=”0px” top_divider_arrangement=”above_content”][et_pb_row use_custom_gutter=”on” gutter_width=”1″ custom_padding=”||” background_color_1=”#ffffff” padding_top_1=”100px” padding_right_1=”100px” padding_bottom_1=”100px” padding_left_1=”100px” admin_label=”Row” _builder_version=”3.22.4″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%”][et_pb_column type=”3_4″ _builder_version=”3.0.47″][et_pb_text admin_label=”Introduction” module_class=”black-text intro-text” _builder_version=”3.22.4″]The IAS 7 \u201cStatement of Cash Flows\u201d, released in 1992, is one of the oldest international accounting standards. One would expect that with a legacy spanning over 25 years, cash flow would be well embedded within the performance management framework of every corporation. But the reality is the opposite. Cash flow statements exist in the obscurity of financial reporting. Most corporations go all-in on the income statement and base their financial reporting and incentive plans on profit and loss, often detailed by segment and function. Strange, since cash flow is regarded as the most justifiable method to appraise economic value. So how can cash flow accountability be turned into a fact?<\/strong>[\/et_pb_text][et_pb_text admin_label=”Alinea 1″ module_class=”body-text black-text” _builder_version=”3.22.4″]<\/p>\n

It all starts with the indirect method, the most commonly used presentation format for cash flow statements. There are many reasons why the indirect method prevails over the direct method; mostly because the indirect method can be derived from financial accounting information and thus is relatively easy to prepare. Most financials unfortunately struggle to really understand what an abstract measure like \u2018operating profit adjusted for changes in working capital\u2019 really means. Here are three quick wins to get more value from cash flow statements, even when using the indirect method.<\/p>\n

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1. Reorganizing the balance sheet<\/strong><\/p>\n

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Funny enough, it all starts with the balance sheet. Corporations generally elect to present and review balance sheets according a GAAP lay out, meaning assets on the one hand, and equity and liabilities on the other hand. This traditional lay out does not promote easy insights into operating performance and value, as it mixes together operating, investing and financing activities. A better practice would be to implement a derivative lay out that organizes the balance sheet by capital employed \u2013 operating and investing activities \u2013 versus funds provided \u2013 equity and net debt, and thus financing activities. This lay out provides a valuable connection to the three main captions of the cash flow statement.<\/p>\n

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2. Reorganizing working capital<\/strong><\/p>\n

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With operating activities separately visible on the balance sheet it is also recommendable to prepare a crystal-clear definition of working capital. As a first measure, trade working capital and non-trade working capital should be identified. Trade items relate to those assets and liabilities that are directly linked to revenue and operating expenses. Those trade items in turn can be grouped into sections related to customers, suppliers, employees and tax authorities. Having trade working capital organized as such provides two powerful opportunities: on the one hand to come up with good DSO\/DPO\/DIO definitions, and on the other hand to provide a more \u2018direct\u2019 view on cash flow by linking each of the separate components of income statement to their counterparts in trade working capital.<\/p>\n

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3. Reorganizing cash flow forecasting<\/strong><\/p>\n

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It is surprising to see that corporations can ask financials the impossible: to forecast a balance sheet. A balance sheet is a statement at a particular point in time \u2013 it is the logical end result of the transactions occurring up to that point in time. Therefore, forecasting should be all about income statement and cash flow statement. Utilizing reliable DSO\/DPO\/DIO definitions on top of the income statement allows to pretty accurately predict the evolution of working capital. Add on top forecasts for capital expenditure, income tax payments and payments from provisions and you already come to a solid free cash flow definition for your operations. This is the type of accountability you want to delegate, while keeping more \u2018corporate\u2019 elements such as the funding decision in the hands of treasury. Don\u2019t bother asking your operations for a full balance sheet and cash flow \u2013 stick to capital employed and free cash flow instead.<\/p>\n

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Implementing these three quick wins already can boost the value added that cash flow statements bring to the performance management of the corporation. Taking cash flow to the next level \u2013 breaking it down by cash generating unit that may involve segmentation by division or product group \u2013 may be more complex and may require adaptations to how financial information is captured within the accounting ledgers.<\/p>\n

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[\/et_pb_text][et_pb_cta title=”Do you want to master Cash Flow?” button_url=”https:\/\/www.staan-academy.com\/courses\/mastering-cash-flow\/” url_new_window=”on” button_text=”Yes!” _builder_version=”3.22.4″ header_font=”||||||||” header_text_color=”#edbc32″ background_color=”#005286″ custom_button=”on” button_text_color=”#edbc32″ button_border_color=”#edbc32″ button_font=”||||||||”]I am hosting a cash flow masterclass in Amsterdam, The Netherlands, starting 12 November. Interested?[\/et_pb_cta][et_pb_text admin_label=”CvL outtro” module_class=”body-text black-text” _builder_version=”3.22.4″]<\/p>\n

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Casper van Leeuwen is executive partner at Satriun, an international Corporate Performance Management consultancy with offices in the Netherlands, Switzerland, France, Germany, Romania, Israel and Belgium. Satriun advises large corporations in the areas of financial consolidation, budgeting & planning, and management reporting.<\/em>\u00a0<\/p>\n<\/blockquote>\n

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Meer weten over dit onderwerp?<\/h4>
Kom in contact<\/a><\/div>[\/et_pb_code][et_pb_code admin_label=”Code” _builder_version=”3.22.4″]

Geplaatst door<\/p>

Casper van Leeuwen<\/p><\/div>

Geplaatst op<\/p>

19.februari.2020<\/p><\/div>

Geplaatst in<\/p>

Cash Flow<\/p><\/div><\/div>[\/et_pb_code][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"author":15,"featured_media":6151,"menu_order":1,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":""},"categories":[140],"tags":[],"yoast_head":"\nCash flow accountability \u2013 three quick wins to turn fiction into fact - Satriun<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/satriun.com\/nl\/article\/cash-flow-accountability-three-quick-wins-to-turn-fiction-into-fact\/\" \/>\n<meta property=\"og:locale\" content=\"nl_NL\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cash flow accountability \u2013 three quick wins to turn fiction into fact - Satriun\" \/>\n<meta property=\"og:description\" content=\"The IAS 7 \u201cStatement of Cash Flows\u201d, released in 1992, is one of the oldest international accounting standards. 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