6. Cash Flow Analysis Extracting Cash Flow series from the Business Plan. Profitability calculations over the lifetime of the investment, NPV and IRR 15.

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Presentation transcript:

6. Cash Flow Analysis Extracting Cash Flow series from the Business Plan. Profitability calculations over the lifetime of the investment, NPV and IRR 15 November 2018 Cash Flow

Using models is like using glasses to see things better! 15 November 2018 Cash Flow

Overview 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 15 November 2018 Cash Flow

Difference between Cash Flow and Operating Statement Op. Statem.: 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 15 November 2018 Cash Flow

Cash Flow from Operations Operating Surplus Cash Flow before Tax Cash Flow after Tax Net Cash Flow Cash Movements 15 November 2018 Cash Flow

Cash Flow from Operations 15 November 2018 Cash Flow

15 November 2018 Cash Flow

Trying to make your model look nicer? 15 November 2018 Cash Flow

Source & Allocation of Funds Source of funds Profit before Tax + Depreciation + Drawdown Allocation of Funds Investment + Repayment + Paid Tax & Dividend Changes in Net Current Assets (Cash, Debtors, Stocks, Creditors) 15 November 2018 Cash Flow

Source & Allocation of Funds 15 November 2018 Cash Flow

15 November 2018 Cash Flow

Analysis of Changes in Net Current Assets 15 November 2018 Cash Flow

Critical Cash Flow Ratios 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 15 November 2018 Cash Flow

Cash Flow Ratios 15 November 2018 Cash Flow

15 November 2018 Cash Flow

Profitability Measures Total Project Cash Flow and Net Cash & Equity Flow Net Present Values and Internal Rate of Return Accumulation of NPV over planning horizon 15 November 2018 Cash Flow

Some things come back again and again! 15 November 2018 Cash Flow

Total and Net Cash Flow 15 November 2018 Cash Flow

Net Present Value and Internal Rate of Return 15 November 2018 Cash Flow

NPV accumulated over planning horizon 15 November 2018 Cash Flow

Internal Rate of Return 15 November 2018 Cash Flow

You will be stuck with this model forever! 15 November 2018 Cash Flow