Konieva T., PhD (Economics), Associate Professor of the Department of Finance and Credit, Petro Mohyla Black Sea National University, Mykolayiv, Ukraine

ORCID ID: 0000-0003-3546-6030
e-mail: tkonieva@gmail.com

Pastukh A., Student of Faculty of Economics, Petro Mohyla Black Sea National University, Mykolayiv, Ukraine

e-mail: pastukhanastasija@gmail.com

Influence of the Operating Cash Flow on the Financial State of the Company

Introduction. The volume of net cash flow from operating activity, in contrast to net profit, is a real indicator of the company’s performance, as it represents a physical reserve of liquid resources that can be directed to financing of the production and sales, enterprise’s development and the fulfilment of the obligations to counterparties. It is possible to analyse the influence of cash flows on the solvency, profitability, general financial state of the firm in correlation, for example, with the volume of income, loans, made investments, equity.

Purpose. Considering the importance of the operating cash flow in generating enterprise’s competitiveness, the purpose of this article is to evaluate the self-financing index of investments, liquidity, duration of debt repayment and quality of earnings on the basis of the most successful sports shoes and apparel firms Adidas, Nike, Puma, Under Armour, Columbia.

Results. In contrast to the direct, indirect method of determining the net cash flows from operating activity allows to analyse the relationship between company’s financing policy and cash flows with the help of changes in inventories, account receivables and payables, other current liabilities. Unfortunately, the available database of the financial statements of domestic companies provides limited information, which makes it impossible to conduct a detailed analysis of cash flows. In this regard, the reports of foreign companies are more informative, based on which the study was made for the period 2014-2018. Conservativeness, moderation and aggressiveness of financing have a different effect on the state of cash flows of the companies. According to the self-financing index of investments (the company’s ability to finance the purchase of securities, equipment, patents or the construction of new buildings using sources earned by the enterprise itself), Nike’s conservative policy is accompanied by increasing of the capital investments and net cash flows from operating activities. With a similar type of policy Columbia, on the contrary, often demonstrates negative values, in other words, the disposal of intangible and tangible assets. Active in self-financing is Adidas, which implements an aggressive financing policy. Puma and Under Armour have average and twice negative values with a moderate policy through negative cash flow from operating activity and decreasing of the intangible assets. The best indicator of the duration of debt repayment (the ratio of borrowed capital, reduced by the amount of cash, short-term investments, net present value of current receivables, and cash flow from operating activities) are demonstrated by Nike and Columbia, which are conservative in financing. Adidas has the highest level among competitors. An analysis of the company’s ability to pay its borrowed capital, using only operating activity, indicates that conservative firms either do not have net debt (Columbia) or their operating cash flow is several times higher than existing debt (Nike). In the case of moderate or aggressive policy, the volume of the operating cash flow is not enough to pay off liabilities (Under Armour, Adidas). In terms of profitability (the ratio of operating cash flow to equity, net revenue, net profit) both firms with a conservative and aggressive policy are in the first places. In the case of Adidas, a stable growth of these indexes is indicated, including increasing of net cash flow and equity. Companies with moderate financing policies show average level of profitability and sometimes even losses.

Conclusions. The results of the study did not reveal the negative impact of conservativeness or moderation of financing policy on the cash flow of companies. Objective thing of the increasing in the aggressiveness degree is the duration of existing debts repayment and the lack of operating cash flow for this. At the same time, the company with aggressive policy demonstrates positive dynamics of capital investments and financial results in terms of net cash flow from operating activities, higher than firms with moderate degree of financing. This article is the basis for further investigation of the impact of cash flows on the main value-based indexes of companies, including cash flow return on investment and cash value added.

Keywords: operating cash flow; self-financing index of investments; duration of debt repayment; net revenue; equity; quality of earnings.

References:

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