The capacity of self-financing (CIF) quantifies during one period the potential of the company to be released from its activity of resource. This internal resource could be used in particular to finance the growth of the activity, to finance new investments, to refund Loans (finance) or to pour dividends with the owners of the company.

The CIF is the potential flow of treasury released by the whole of the normal activity of the company. The CIF is not exactly a flow of treasury (English cash-flow). Indeed, it does not take account of the cashings and the withdrawals actually carried out during the period.

Confusion between CIF and cash-flow is unfortunately frequent. To obtain a flow of treasury resulting from the normal activity, it is necessary to cut off with the CIF the variation from the requirement in working capital for the period. By cutting off from the CIF the amount of the paid dividends during the period, one obtains the self-financing.

The banks, by comparing the CIF with the amount of the financial debts, measure the capacity of refunding of the company. Those are attentive with the evolution of the following ratio: \ frac {Debts financi \ serious eras} {CIF} .

This ratio indicates the capacity of the company to refund its debts. A ratio equal to three for example indicates that the company spends three years to be released.

Methods of calculating.

The CIF is calculated starting from the income statement of the exercise.

  • subtractive method

This way of calculating rises directly from the definition of the CIF.

The CIF is calculated by making the difference between the products encaissables and them loads décaissables concerning normal activity of the company, i.e. which do not concern the financial transactions or investment.

Let us note that a product encaissable (resp. a load décaissable) is potentially generating of a receipt (resp. spend). Contrary a product (resp. a load) calculated does not generate monetary flow. In practice, to the rough surplus of exploitation (EBB) are added the transfers of charge of exploitation and the other products encaissables of the normal activity and are withdrawn the other loads décaissables normal activity.

EBE

+ transfers of charge of exploitation towards deferred charges on several exercices
+ other products encaissables of the activity normale
- other loads décaissables of the activity normale
= CAF

Let us note that the transfers of charge of exploitation towards deferred charges on several exercises allow the activation of certain loads. These last are indeed expenditure, but are regarded as an investment. These transfers of charge, although being a calculated product, must be added to the EBB to cancel the impact of loads which do not concern the normal activity of the company.

  • additive method.

This second method of calculating is in general faster than the first.

The CIF can be also calculated from (bottom line) to which one adds the calculated loads (equipments to depreciation and provisions and to which one cuts off the calculated products the recoveries from provisions and depreciation. It is necessary moreover eliminate from the bottom line the impact of the financial transactions and investment appearing in the income statement. Firstly, it is necessary to cut off the quotas from subsidies of investment transfered with the income statement which are caclulés products. In the second place, it is necessary to add the countable net amount of the yielded assets (VNCEAC) and to withdraw the products of transfers of the assets, since these the last two elements concern the function of the investments. Moreover, the VNCEA is a calculated load. On the other hand, the PCEA are products encaissables and correspond to the selling price of the yielded fixed assets.

Countable Bottom line

+ calculated Loads
- Recovery on calculated loads
+ Countable Amount Net Active Element Yielded
- Products of Transfer of Assets
- quota of the subsidies of investment transfered with the result for the period ended
= Capacity of Self-financing

History

1984: concept added to the installation of the countable Framework.

The gross margin of self-financing is the concept which had been retained before the Plan accountant does not adopt that of capacity of self-financing.

Always used by the Order of the Certified public accountants and the Central Bank of the Assessments, the Gross margin of Self-financing regards the equipments on current assets (Net of the recoveries) as a monetary load. By doing this, contrary to the CIF, the MBA appears dependant on the policy of provision.

See too

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