1. Cash Flow and Financial Planning

2. Outline Introduction Analysing Cash Flows
The Financial Planning Process
Cash Budgets
Pro forma statements

3. Introduction Depreciation Accounting vs Tax
Depreciable value = all cost necessary to get asset into condition needed to use the asset less salvage/residual value
Depreciable life
Depreciation methods
Straight line
Reducing balance
Sum of years

4. Statement of Cash Flows
Purpose:
analyse cash flows
Analyse strength of business
Analyse funding decisions
Analyse investing decisions

5. Operations
Financing
Investing

6. Cash Flows in pictures

8. Use T-Accounts when not sure
Cash from Operations
Net profit
Adjusted for non-cash movements:
Depreciation
Bad Debts
Impairment
Working capital movements
Changes in accounts receivable
Changes in Inventory
Changes in accounts payable
Changes in accrued expenses
Changes in other current assets and liabilities
Use T-Accounts when not sure

9. Operating Cash Flows (OCF)
OCF = NOPAT + Depreciation
Nopat = EBIT x (1-T)
Therefore OCF = EBIT x (1-T) + Depreciation
EBIT = Operating Profit (Earnings before Interest and Tax)

10. X Free Cash Flow (FCF) FCF = OCF – CAPEX – Changes in Working Capital
FCF = OCF – Net non-current investment – Net current asset investment
NNCI = Change in net non-current + depreciation X

11. Financial Planning Process
Guide
Strategic
Cash Planning
Operational
Profit Planning
Long Term
Short Term
Co-ordinate
Control

12. Long-Term Financial Plans
Bigger picture
2 – 10 years

13. Short Term (operating)
Sales Forecast
Production plans
Pro-forma Income Statement
Pro-forma balance sheet
Long-term
Financing plan
Non-Current
Asset layout
plan
Cash Budget
Current
Balance Sheet

14. Sales Forecast
External
Internal
Cash Receipts (Lagged)
Sales receipts
Other receipts
Cash Disbursements (Lagged)
rent
Wages and salaries
Tax
Interest
Dividends
Principal loan repayments

15. Desired Minimum cash balance
Cash Receipts -
Cash Disbursements =
Net Cash Flow +
Beginning Cash -
Desired Minimum cash balance =
Required Total financing / Excess cash balance