Cash outflow refers to the total amount of cash expenditure paid by an enterprise within a certain period of time, including various expenses such as purchasing raw materials, paying wages, and paying rent. Correctly calculating cash outflows is of great significance for business management and decision-making.
1. Expenditure on the purchase of raw materials
1.Procurement: It is necessary to determine the unit price of raw materials to be purchased, which is usually determined through negotiation on the basis of the procurement of raw materials.
2.Quantity purchased: In addition to the purchase**, the quantity of raw materials purchased needs to be considered, as different purchase quantities can lead to differences in the amount spent.
3.Transportation costs: The process of transporting raw materials from the merchant to the enterprise will incur certain transportation costs, which also need to be included in the calculation of cash outflow.
2. Payment of wages and benefits
1.Salary standard: The salary standard of each employee needs to be calculated, including basic salary, bonuses, allowances, etc. Salary rates will vary for different positions and ranks.
2.Number of employees: When calculating cash outflows, you need to consider the number of employees employed by the business, as the difference in the number of employees will also lead to differences in the amount of expenses.
3.Welfare expenditure: Various benefits provided by enterprises to employees, such as social security, housing provident fund, medical insurance, etc., also need to be included in the calculation of cash outflow.
3. Pay rent and utilities
1.Rent standard: It is necessary to calculate the unit price and area of the house rented by the business, because different rent standards and rented area will affect the total amount of expenditure.
2.Utilities: Utilities are used by businesses to pay for utilities such as water and electricity, and also need to be included in the calculation of cash outflows.
3.Taxes and fees: Enterprises need to pay various taxes and fees in the process of operation, including income tax, value-added tax, urban maintenance and construction tax, etc. Taxes are one of the costs that enterprises must bear, which have a direct impact on the financial status and cash flow of enterprises, so enterprises need to include taxes and fees in the calculation of cash outflows.
4. Expenditure on the purchase of fixed assets
1.Procurement: You need to determine the purchase of each fixed asset, because different asset purchases can result in differences in the amount of expenditure.
2.Quantity and specification: The quantity and specification of the fixed asset that is purchased need to be considered, as different specifications and quantities of fixed assets affect the total amount of the expenditure.
3.Transportation and installation costs: When calculating cash outflows, there are also transportation and installation costs that need to be considered, which are also necessary expenses for the purchase of fixed assets.
5. Other expenditures
In addition to the above expenses, enterprises also need to consider some other expenses, such as advertising expenses, conference expenses, maintenance costs, etc. When calculating cash outflows, these expenditure items need to be taken into account and properly classified and calculated.
Advertising expenses: In a highly competitive environment, businesses need to advertise to increase brand awareness and product sales. Advertising expenses include online and offline advertising, public relations activities, etc. Enterprises need to formulate a reasonable advertising plan according to market demand and budget, and include related expenses in the calculation of cash outflow.
Conference fees: Enterprises may need to hold various conferences, trainings or business activities when conducting business activities, involving venue rental fees, catering expenses, gift expenses, etc. Although these conference expenses may be a one-time expense, they still need to be properly planned and budgeted for in the overall operation of the business, and taken into account the cash outflow.
Maintenance costs: Enterprises will encounter equipment maintenance, office facilities maintenance, etc., and need to pay the corresponding maintenance costs. These expenses are critical to keeping your business running, so you need to take them into account when calculating cash outflows and budget them accordingly.
6. Calculation method of cash outflow
The method and formula for calculating cash outflows can be either direct or indirect. The formulas for each of these methods are described below:
1.Direct Method:
The direct method calculates cash outflows based on the specific amounts of each cash expenditure item. It requires businesses to list all cash expenditure items and aggregate their totals. Here is the formula for calculating the direct method:
Cash Outflow = Cash Expenditure Item 1 + Cash Expenditure Item 2 + Cash Expenditure Item N
For example, suppose that a company's cash expenditure items in a certain period include the purchase of raw materials, the payment of wages and benefits, the payment of rent, utilities, etc. Then the cash outflow can be calculated as:
Cash outflow = Expenses for purchasing raw materials + Expenses for wages and benefits + Paying rent and utilities.
2.Indirect Method:
The indirect method calculates cash outflows by adjusting net profit. It requires that non-cash expenses or income be added back or subtracted from net profit to reflect actual cash outflows. The following is the formula for calculating the indirect method:
Cash outflow = net profit + non-cash expenses - non-cash income.
Non-cash expenses include depreciation, amortization, bad debt provisions, etc., while non-cash income includes long-term receivables**, etc.
It is important to note that there may be some differences between the cash outflows calculated by the direct and indirect methods, but both methods can provide insight into the cash flow of the business.