2. Using Cash Flow Budgets to Improve Cash Flow & Liquidity in the Catfish Business Carole R. Engle Aquaculture/Fisheries Center U. of Arkansas at Pine Bluff

3. Overview of Structure and Interpretation of Cash Flow Budgets Engle, UAPB

4. Short & long-term financial decisions: Can it generate enough value over time to pay off the debts (solvency)? –Balance Sheets Is it profitable in the long run? Is it profitable in the short run? Can it generate enough cash when needed to pay the bills (liquid)? Engle, UAPB

5. Financial Analysis: Key Statements  Financial Position  Balance Sheet  Profitability  Budgets  Income Statement  Cash Flow/Liquidity  Cash Flow Statement Engle, UAPB

6. Cash Flow Analysis: What Can It Be Used For? Use it to develop a plan for adverse conditions. Plan should consider budgeting enough to be able to feed to obtain adequate yields. Consider looking hard at fixed costs as way to reduce overall costs. Engle, UAPB

7. Cash Flow Analysis: What Can It Be Used For? Whether there is a liquidity problem Whether there is a cash shortfall in particular months. Whether the business can make its payments on time. What the cash position of the business is. If the operating line of credit is adequate or not Engle, UAPB

8. Cash Flow Analysis: What is the unit of analysis? Entire farm Engle, UAPB

9. Cash Flow Analysis: How Can It Help? Analyze pattern of cash flow Structure operating line of credit Credit & loan applications Decide on best timing for capital purchases (equipment, land, etc.) Look to improve timing of purchases of supplies, inputs Engle, UAPB

10. Cash Flow Analysis: Structure ItemJanuaryFebruary Total cash inflow$611,090$628,406 Total cash outflow$14,940$50,848 Cash available$596,150$577,548 New borrowing00 Ending cash balance$596,150$577,548 Engle, UAPB

11. Cash Flow Analysis: Sructure ItemJanuaryFebruary Beginning cash$578,834$596,150 Total cash outflow$14,940$50,848 Cash available$596,150$577,548 New borrowing00 Ending cash balance$596,150$577,548 Engle, UAPB

12. Cash Flow Analysis: Total Cash Inflow ItemJanuaryFebruary Beginning cash$578,834$596,150 Receipts from catfish sold $32,256 Total cash inflow$611,090$628,406 Engle, UAPB

13. Cash Flow Analysis: Operating cash expenses ItemJanuaryFebruary Feed$2,783$5,565 Fingerlings0$36,416 ….. Total operating expenses $14,940$50,848 Engle, UAPB

14. Cash Flow Analysis: Debt Servicing ItemJanuaryFebruary Real estate loan Principal 00 Interest 00 Equipment Principal 00 Interest 00 Operating loan Principal 00 Interest 00 Engle, UAPB

15. Cash Flow Analysis: Summary of Debt Outstanding ItemJanuaryFebruary Real estate00 Equipment00 Operating00 Engle, UAPB

16. Cash Flow Analysis with 50% of catfish off-flavor and 30% financed. ItemJulyAugust Total cash inflow$63,387$50,320 Total cash outflow $80,239$99,766 Cash available- $16,852- $49,446 New borrowing$26,852$59,446 Ending cash balance $10,000 Engle, UAPB

17. Cash Flow Analysis: Summary of Debt Outstanding ItemJulyAugust Real estate 00 Equipment 00 Operating $103,259$145,340 Payments are made on operating line of credit in each of these months because there is a lien on the fish sold. Engle, UAPB

18. Liquidity Measures for 256-acre Catfish Farm RatioInterpretation Interest Coverage Ratio Relates interest to firm’s ability to service debt. How much of firm’s returns to assets available per dollar of interest. Higher ratios more favorable. Cash Flow Coverage Ratio Extent that excess cash provides cushion for covering debt-servicing. Higher ratios more favorable. Debt- servicing ratio Cash required for interest and principal payments. Lower ratios show lower debt burden. Engle, UAPB

19. Measures of Cash Flow Risk for 256-acre Catfish Farm Cash flow risk measure Percent farm revenue can decline and still meet cash flows Percent farm expenses can increase and still meet cash flows Percent interest rates can increase and still meet cash flows Engle, UAPB

20. Liquidity Measures for 256-acre Catfish Farm RatioValue Interest Coverage Ratio0.14 Cash Flow Coverage Ratio5.63 Debt-servicing ratio0.18 Engle, UAPB

21. Measures of Cash Flow Risk for 256-acre Catfish Farm Cash flow risk measureValue Percent farm revenue can decline and still meet cash flows 0.45 Percent farm expenses can increase and still meet cash flows 0.009 Percent interest rates can increase and still meet cash flows 0.26 Engle, UAPB

22. How Are These Calculated? The training materials include spreadsheets with: exercise balance sheet, income statement, cash flow budgets The correct versions, the financial ratios, & Includes a brief interpretation of each ratio and how to improve it. Engle, UAPB