How to calculate cash flow from investments

Calculating cash flow from an investment is one of the most cardinal things a business owner must do because cash flow is about the most revealing financial statements of a firm. A cash flow is the central document that shows how money comes into the firm, what it is being used for. It lists all the sources of a firm’s finances and the outlets. Since business is mostly about maximizing cash input and reducing cash output in form of expenditure the cash flow gives anyone an idea of the cash position of every company. Calculating ash flow is thus not only useful to the management but regulatory agencies of government, partner firms and lenders. Calculating cash flow is a must if the firm must truly score it performance over a financial year.

CASH FLOW ON INVESTMENT

There are many items on the cash flow document, but one of this is indicate the money spent on investment, if any. Most firms set a certain percentage of their income for investment, which is a way of preparing for rainy days. There are so many investment opportunities, some may include;

FINANCIAL MARKET

This represent one common place where money is put into, the firms are often attracted to the financial market because of many reasons. One is that there are so many options; some are short term while others are long term. Forex for example, a firm may invest some money into the foreign exchange market mostly through a fund manager; it has the potential of yielding high and fast returns.

COMMODITIES

There is no gain saying that so many firms trade in commodities. The potential profit is always the attractive feature. Within a good trading year they can make so many returns on investment.

HOW IS THE CASHLOW ON INVESTMENT ORGANISED.

It is simple and planned in such a way that just looking at it gives a clear understanding of how much was spent and on what. It is drawn in form a table with rows and columns. For each year the items on which investment was made are listed and the amount spent also written down. The total amount spent for that year or period is summed up and written down.

The next thing is that, the money that came in from each investment is also tabled. Whatever activity carried out with the investment that brought in money will also be recorded. This goes to show that a firm can spend so much money on investment and it won’t be seen as a bad thing if within a short period that investment starts yielding returns that eventually offset the capital investment. So it is critical to analyze the whole cash flow before making conclusions on the financial position of it.

The investment section of a cash flow is a clear testament to the firm’s out flow and inflow. If the firm invested properly, the return on investment can comfortably pay for or cancel it expenses. Furthermore, note should be taken of the fact that an investment while not yet profitable can still be taking money in form of expenses to keep it running until it break even. Such expenses would best appear under the investment section of the cash flow.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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