Cash Flow Analysis

2 day course on Cash Flow Analysis

Objectives:

At the end of this session all participants will be able to:

• Explain the reasons for the differences between cash and profit and the implications for the banker
  
  
• Construct a cash flow statement in a recognised format
  
  
• Demonstrate the usefulness of the cash flow statement in the credit analysis process
  
  
• Provide a full and complete definition of the meaning of liquidity
  
  
• Analyse a company's cash flow dynamics using cash flow ratios
  
  
• Calculate a company's debt capacity
  
  
• Explain the difference between budgets and forecasts and demonstrate how they are prepared in practice
  
  
• Provide a framework for the setting of forecasting assumptions
  
  
• Build a forecasting model
  
  
• Evaluate budgets and forecasts using sensitivity and break-even analysis

Financial Reporting Review

• Concept of a true and fair view
• Reporting regulations
• Purpose of the profit and loss account
• Balance sheet issues
• Cash v profit

The Cash Flow Statement

• Background
• Reporting requirements
• Construction - domestic and international versions

Uses of the Cash Flow Statement

• Operational liquidity
• Internal versus external sources of cash
• Company viability
• Debt repayment
• Capex

Liquidity

• Operational liquidity
• Revenue volatility
• Cash cycle
• Cost structure
• Working investment
• Non-operational liquidity
• Measuring total liquidity
• Key issues

Cash flow ratios

• Uses and limitations with standard ratios
• Concept of free cash flow
• Serviceability
• Priority outflow cover
• Capital structure

Debt Capacity

• Calculation of free cash flow
• Debt horizons
• Total debt capacity
• Additional debt capacity

Budgeting and forecasting

• Differences between budgets and forecasts
• Types of budgets and forecasts
• How prepared in practice
• Key issues - For the bank - For the corporate

Using sensitivity and break-even analysis

• Testing assumptions
• Identifying key areas of sensitivity
• Break-even analysis
• Sales and gross margin approach
• Unit contribution approach
• Cash basis approach
• Use of breakeven in investment decision making