Cash Flow Analysis and Forecasting Techniques

• Risk analysis framework
• Avoiding elevator analysis
• Review of the cash flow statement formats
• The impact of accounting standards: IFRS v domestic standards

• Measuring operational liquidity
• Internal v external sources of cash
• A structure for analysing cash – the five cash drivers
• Company viability
• Debt repayment capacity
• Different industry characteristics

CASE STUDY PART 1: Delegates will be divided into groups with each group allocated a specific company. Using the annual report and computerised spreadsheets as base documents they will be required to analyse the working capital and operational dynamics of the company.

• Uses and limitations with standard ratios
• Putting EBITDA into perspective
• Defining free cash flow
• Serviceability
• Priority outflow cover
• Capital structure

• Different calculations of free cash flow
• Establishing debt horizons
• Total debt capacity
• Additional debt capacity
• Capital structure implications

CASE STUDY PART 2: Building upon their analysis from part one, delegates will now be required to analyse the specific cash flow dynamics of their company and on the basis of this analysis, evaluate the company’s debt service capacity and estimate the total debt that the company could potentially carry.

• Operational liquidity
• Revenue volatility
• Cash conversion cycle
• Cost structures
• Working investment
• Non-operational liquidity
• Measuring total liquidity
• Key issues
• The need for liquidity planning

CASE STUDY PART 3: Delegates will be required to assess the company’s liquidity position by combining analysis of operational liquidity, liquidity reserves and other non-operational liquidity sources.

• Financial plans as part of the strategic planning process
• Criteria for effective planning
• Differences between plans, projections, forecasts and budgets
• Types and uses of budgets and forecasts
• How prepared in practice
• Key issues
• For the bank
• For the corporate

• A structure for forecasting using a combination of:
• Historical financial data
• Ratio analysis
• Assumptions
• The base case
• The impact/relationship between balance sheet, income statement & cash flow

CASE STUDY PART 4: Drawing upon analytical conclusions from previous parts of the case study, delegates will now draw up and sensitise forecasts covering an appropriate time period. All assumptions will have to be clearly stated and sensitivities must illustrate the impact upon any relevant covenants.

• A framework for assumption setting
• Understanding the company’s corporate strategy
• Non-financial drivers/factors
• Financial drivers/factors