Cash flow (case)

Cash flow (현금흐름) is increasingly important in corporate financing. The exemplary three cases illustrate cash flows in a different way.

First of all, the following questions should be answered:
 * How can a new business operation make break-even-point being attained earlier than expected?
 * How come a cellula phone dealer who insists on more than two-year long service contracts promise to give the expensive phone device for free?
 * What makes the asset securitization of future export receivables possible on what conditions?

Key words
cash flow, net present value, account receivables, asset securitization

Magic of "steady" Cash flows
In corporate financing, steady and stable cash flows can make following cases possible.

Case 1
A businessman says, "Now I invest 100. I want to collect 30 in a couple of years. Then I hope to see the business generating cash flows enough to invest in other items on a continual basis." In this statement, cash flow means the movement of cash into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on the company's value and situation. For example, a project can be approved by the investors on condition that its rate of return should be above 10 per cent or so. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return (IRR), and net present value (NPV).

Case 2
Inamori Kazuo, founder of Kyocera Group, said in his memoir, Karma Management:

If you want to attain something in your live, you have to run to the finish, and keep on thinking it earnestly and seriously until it could be visible. . . . When I founded DDI and started to provide mobile phone services, the situation was totally same. Then I declared, "Now it's the time of cellular phones." But people didn't believe what I told them, by saying, "No more nonsense." But I was confident that common people could talk to each other via a cellular phone anytime and anywhere, and, regardless of old and young, would have their own telephone numbers someday in the future.

It was because semiconductor business at Kocera showed the speed of technological innovation of semiconductor industry and the probable changes of related services and costs. I anticipated the brand-new market of cellular phones would be expanded. In addition, I could expect the formula of down payment, monthly payments, phone charges and other service charges. At that time, a general manager in charge of cellular phone services wrote down what I explained to him. Later, when we started the cellular phone services, he was surprised to see what I told him was really implemented.

Case 3
In the 1980s, asset securitization assumed a vital role for private sector financing in emerging market countries. Since the end of the 1980s, large and highly-rated corporates and banks in developing economies have successfully sold receivables from future claims against obligors. Future flow securitization debuted in Mexico, when Teléfonos de México S.A. de C.V. securitized its telephone receivables in 1987. In this case, the obligors were U.S. long distance carriers such as AT&T, Sprinter, MCI with good credit standing.

Such “future flow securitization” involves the origination of foreign currency-denominated debt secured by future export receivables and financial flows from either credit card merchant vouchers or other payment rights in a move to vault the low sovereign ceiling of emerging market county ratings and borrow at lesser cost than under conventional funding methods.