Planning and Managing your business cash flow -Part 2- Advanced

Powerful tools and techniques based on real experience

• Understand the 3 cash flow activities

• Be able to differentiate between different cash flow

formats

• Analyze your cash flow statement

• Understand the importance of forecasting

• Understand short term and long term forecasting

• Make short term and long term forecasts

• Understand the concept of “free cash flow”

• Calculate free cash flow to firm (FCFF) and free cash flow to equity

(FCFE)

• Understand the concept of “cost of trade”

• Calculate the NPV of the cost of trade and make the right decision

Learning outcomes

Objectives of a well designed cash management system (1/2)

Objectives

What are the sections of the cash flow statement?

Cash Flow

Operating cash flowDay to day activities that create

revenue

Investing cash flow

Purchase and sale of investments

Financing cash flow

Obtaining or repayment of capital

Cash flow analysis; Cash Flow Ratios

Formula What it measures

Performance ratios

Cash flow to revenue Operating cash flow / Revenue

Cash generated per dollar of revenue

Cash return on assets Operating cash flow / Average total assets

Cash generated from all resources

Cash to income Operating cash flow / Operating income

Cash generating ability of operations

Coverage ratios

Debt coverage Operating cash flow / Total debt

Financial risk and financial leverage

Interest coverage (Operating cash flow + Interest paid + Taxes paid) / Interest paid

Ability to meet interest obligations

Reinvestment Operating cash flow / Cash paid for long term

assets

Ability to acquire assets with operating cash

flows

Short Term Forecast

Short term forecasting

Determine the need for short-term financing

Great accuracy

Determine the cash

requirements for financial

operations

Shows how much cash is available for temporary

investments

Helps avoid scheduling large

payments at times when cash

position is low

Helps minimize the company’s

cost of maintaining

credit lines and borrowing

Recommended method for short term forecasting

is the cash receipts and

disbursement method

Long Term Forecast

Note: Both direct and indirect method can be used for long term forecasting, and it is best to do a forecast of both, since each one will allow you to see your cash flow from a different angle.

Long term forecasting

Less detailed and less accurate

Assist management in

securing the funds necessary

to finance corporate plans

Shows the long term growth

Helps decide how much

money should be borrowed

Helps decide how long will it take to repay the borrowed

funds

Shows how financing

decisions affect the capital structure

Helps determine what projects

should be approved,

deferred, or abandoned

Thank You For Coming Today!

Tel: +961 1 385 825 / website: www.bsf-lb.comEmail: info@bsf-lb.com

Facilitator: Antoine Tabbakh

/BestSolutionFinance Company/bsf #bsfbeirut