6 Cash Flow Analysis Extracting Cash Flow series

6. Cash Flow Analysis Extracting Cash Flow series from the Business Plan. Profitability calculations over the lifetime of the investment, NPV and IRR 10/2/2020 Cash Flow 1

Using models is like using glasses to see things better! 10/2/2020 Cash Flow 2

Overview n n n 6. 1 Difference between Cash Flow and Operating Statement 6. 2 Cash Flow from Operations 6. 3 Source and Allocation of Funds (optional) 6. 4 Critical Cash Flow Ratios 6. 5 Profitability Measures 6. 6 Graphical Representation 10/2/2020 Cash Flow 3

Difference between Cash Flow and Operating Statement n Op. Statem. : n n n Cash Flow: Issued bills vs Paid bills => debtor & creditor changes Inventory movem. vs Working Capital Depreciation vs Repayments Taxes paid year later Dividend paid year later 10/2/2020 Cash Flow 4

Cash Flow from Operations n n n Operating Surplus Cash Flow before Tax Cash Flow after Tax Net Cash Flow Cash Movements 10/2/2020 Cash Flow 5

Cash Flow from Operations 10/2/2020 Cash Flow 6

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Trying to make your model look nicer? 10/2/2020 Cash Flow 8

Source & Allocation of Funds n Source of funds n n Allocation of Funds n n Profit before Tax + Depreciation + Drawdown Investment + Repayment + Paid Tax & Dividend Changes in Net Current Assets (Cash, Debtors, Stocks, Creditors) 10/2/2020 Cash Flow 9

Source & Allocation of Funds 10/2/2020 Cash Flow 10

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Analysis of Changes in Net Current Assets 10/2/2020 Cash Flow 12

Critical Cash Flow Ratios n n For each year of operation: Debt Service Coverage = Cash Flow after Tax / (Repayment + Interest of Loans) Loan Life Cover Ratio = NPV of Cash Flow after Tax for rest of lifetime / Principal of Loans Both ratios should be > 1. 5 10/2/2020 Cash Flow 13

Cash Flow Ratios 10/2/2020 Cash Flow 14

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Profitability Measures n n n Total Project Cash Flow and Net Cash & Equity Flow Net Present Values and Internal Rate of Return Accumulation of NPV over planning horizon 10/2/2020 Cash Flow 16

Some things come back again and again! 10/2/2020 Cash Flow 17

Total and Net Cash Flow 10/2/2020 Cash Flow 18

Net Present Value and Internal Rate of Return 10/2/2020 Cash Flow 19

NPV accumulated over planning horizon 10/2/2020 Cash Flow 20

Internal Rate of Return 10/2/2020 Cash Flow 21

You will be stuck with this model forever! 10/2/2020 Cash Flow 22