Cash flow – Repayments of loans

Cash flow – Repayments of loans

Definition of cash flow 

Definition of cash flow 

The cash flow of a company is the cash flow from the activity theoretically cashable by the company.

Theoretically cashable?

In other words, in a world without payment deadlines and no inventory, the company will buy only what it needs to sell, pay its suppliers and the state immediately, and will in turn be paid without delay.

The company will therefore cash the sum of its cashable products less the sum of its disbursable expenses (that is to say excluding products and expenses purely accounting type depreciation charges), or its cash flow.

Calculation of cash flow

Calculation of cash flow

This is the second problem of CAF: besides being an abstract value, it is not fun to calculate.

There are two methods for calculating cash flow: the subtractive method and the additive method.

Subtractive method:

The subtractive method consists of the EBE and subtracting the disbursable charges (and adding the cashable products) not included.

Gross Operating Surplus (EBITDA)
+ Transfers of operating expenses
+ Other products of current management
+ Financial products
+ Exceptional income (excluding disposals)
– Other current management charges
– Financial expenses
– Exceptional charges (excluding VNC)
– Employee participation in the results
– Income taxes
= Self-financing capacity

Additive method:

Faster, the additive method is based on net income and neutralizes the recognition of non-cash items.

Net profit
+ Depreciation and amortization
+ Book values ​​of transferred assets
– Reminder of depreciation and provisions
– Proceeds from the sale of assets
– Share of investment grants
= Self-financing capacity

What is the self-financing capacity used for?

What is the self-financing capacity used for?

CAF is a pre-investment and partially pre-financing measure (partly because it takes into account interest charges but not capital repayments).

In financial theory, the self-financing capacity is used to estimate the theoretical capacity of the company to finance its investments and capital (repayments of loans and shareholder remuneration). Hence the term ‘self-financing’.

But quite frankly: the self-financing capacity is not very useful! CAF is a very abstract concept invented by and for accountants.

The entrepreneur and the investor are looking at the cash flows that are the opposite of CAF:

  • Cash flow takes into account payment terms, not the CIF.
  • Cash flows are cashed, cash flow is cashable.