Cash Flow Analysis Modified UCA Cash Flow Format
Cash Flow AnalysisModified UCA Cash Flow FormatDr. Charles W. MulfordInvesco Chair and Professor of AccountingScheller College of BusinessGeorgia Institute of TechnologyAtlanta, GA 30332-0520(404) 894-4395
C. Mulford: Cash Flow Analysis, p. 1Analyzing Cash FlowsSelected income statement data and a cash flow statement in theUCA format are provided below for 5 cases. Each case is avariation on the income and cash flow statement for the samecompany. In fact, in every case, the company reports the samenet income.Use the data provided to draw what conclusions you can aboutthe company's ability to service its outstanding long-term debt.What additional questions are raised and what additionalinformation would be helpful in answering them?
C. Mulford: Cash Flow Analysis, p. 2Income Statement Statement DataCases 1 - 3Amounts in (000's)Sales 8,000Cost of Goods Sold (incl. dep'n of 800)SG&AOperating IncomeOther Income (Expense)Interest ExpensePretax IncomeTax ProvisionNet Income 4,9601,920140(240)6,8801,120(100)1,020250 770Case 4Amounts in (000's)SalesCost of Goods Sold (incl. dep'n of 800)SG&AOperating IncomeOther Income (Expense)Interest ExpensePretax IncomeTax ProvisionNet Income 8,000 5,6002,2401,100(240)7,8401608601,020250 770
C. Mulford: Cash Flow Analysis, p. 3CASE 1: Cash Flow Statement (000's)RevenueChange in receivablesCash from revenueCost of revenue (excl. depn of 800)Change in InventoryChange in A/PCash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receipts (payments)Total Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt serviceInterest paidOperating cash flowCapital ExpendituresFree cash flow 8,000(500) Change in cash and equivalents before financing0(190)Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingEquity financingFinancing transactionsChange in cash and equivalents after financing(310)5000190 0
C. Mulford: Cash Flow Analysis, p. 4CASE 2: Cash Flow Statement (000's)RevenueChange in receivablesCash from revenueCost of revenue (excl. depn of 800)Change in InventoryChange in A/PCash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receipts (payments)Total Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt serviceInterest paidOperating cash flow 8,000(1,800) (250)40(42)(252)(750)(240)(990)Capital ExpendituresFree cash flow(1,000)(1,990)InvestmentsChange in cash and equivalents before financing0(1,990)Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingEquity financingFinancing transactionsChange in cash and equivalents after financing(310)1,3001,00001,990 0
C. Mulford: Cash Flow Analysis, p. 5CASE 3: Cash Flow Statement (000's)RevenueChange in receivablesCash from revenueCost of revenue (excl. depn of 800)Change in InventoryChange in A/PCash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receipts (payments)Total Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt service 8,000(500) 50)(950)(42)(1,242)60Interest paidOperating cash flow(240)(180)Capital ExpendituresFree cash flow0(180)InvestmentsChange in cash and equivalents before financing0(180)Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingEquity financingFinancing transactionsChange in cash and equivalents after financing(310)4900180 0
C. Mulford: Cash Flow Analysis, p. 6CASE 4: Cash Flow Statement (000's)RevenueChange in receivablesCash from revenueCost of revenue (excl. depn of 800)Change in InventoryChange in A/PCash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receipts (payments)Total Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt serviceInterest paidOperating cash flow 8,000(500) 40(42)(252)1,050(240)810Capital ExpendituresFree cash flow0810InvestmentsChange in cash and equivalents before financing0810Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingEquity financingFinancing transactionsChange in cash and equivalents after financing(310)(500)0(810) 0
C. Mulford: Cash Flow Analysis, p. 7Some Comments on the Cash Flow CasesCase 1: Company is positive core operating cash flow, and operating cashflow. Cash available for debt service is sufficient to pay interestand required principal payments on LT debt. Capital expenditures of 1,000 are financed with internalcash of 810 and new financing of 190. Cash generatedfrom new investments can be earmarked to service theincremental long-term debt financing. Free cash flow is not positive. Co. can finance capital expendituressufficient to replace fixed assets consumed in operations ( 800)with operating cash flow, but not capital expenditures needed togrow fixed asset base ( 1,000). This is not an unusual cash flowprofile.Case 2: Company is generating negative core operating cash flow. Inaddition, cash available for debt service is insufficient to serviceinterest and required principal payments. Reasons for the cashshortfall can be traced to growth in A/R and Inventory, offset onlyslightly by the growth in A/P. Is the growth in these account balances consistent withthe growth in operations? Is it due to declining operatingefficiency? Is it a seasonal phenomenon? Working capital needs are being financed with 1,300in short-term debt financing (e.g., secured by A/R and/orInventory) and from internal sources. This viable financing plan assuming increases in A/R andInventory are seasonal. If the cash needs are growthrelated, longer-term financing should be sought. Capital expenditures of 1,000 are financed with new long-termdebt financing of 1,000.
C. Mulford: Cash Flow Analysis, p. 8Case 3: Company is generating insufficient Cash available for debt serviceto service interest and required principal payments. The primaryreason for the cash shortfall can be traced to the 950 decrease inthe deferred tax liability. Is the amount out of the ordinary? What does it potentially say about future capitalexpenditures? More information is needed. Normal level of deferred tax provision. Management's capital expenditure plans. Additional long-term debt was used to finance the cash shortfall,which was mostly a refinancing of the current portion. Not a long-term viable solution, unless deferred tax cashdrain changes. New capital expenditures (and more cash) are likelyneeded for this to occur.Case 4: Company is less profitable than in cases 1 - 3. While it isgenerating sufficient Cash available for debt service to serviceinterest and current portion, the primary reason is so-called “Otherrecurring cash receipts.” What is the source of the other income?The cash flow statement indicates a cause for concern even thoughlong-term debt was reduced during the current year. If other income is non-recurring, the company will, in thefuture, be unable to service interest and the current portion.
C. Mulford: Cash Flow Analysis, p. 9One Last ExampleIncome Statement DataCase 5Amounts in (000's)SalesCost of Goods Sold (incl. dep'n of 800)SG&AOperating IncomeOther Income (Expense)Interest ExpensePretax IncomeTax Provision (benefit)Net Loss 8,000 5,6002,2400(240)7,840160(240)(80)(20) (60)
C. Mulford: Cash Flow Analysis, p. 10CASE 5: Cash Flow Statement (000's)RevenueChange in receivablesCash from revenueCost of revenue (excl. depn of 800)Change in InventoryChange in A/PCash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receiptsTotal Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt service 8,000500 0)(0)1,560Interest paidOperating cash flow(240)1,320Capital ExpendituresFree cash flow01,320InvestmentsChange in cash and equivalents before financing01,320Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingEquity financingFinancing transactionsChange in cash and equivalents after financing(310)(500)00(510)(1,320) 0
C. Mulford: Cash Flow Analysis, p. 11Case 5: Company is losing money, though generating ample cashflow to service interest and current portion. Source of operating cash flow is depreciation and declinesin accounts receivable and inventory. Apparently, thecompany is liquidating itself. Long-term debt service capacity would require a return toprofitable operations.
C. Mulford: Cash Flow Analysis, p. 12Analyzing Core Operating Cash FlowUsing Ratios to Identify Borrowing CausesKey determinants of changes in the components of Coreoperating cash flow: Growth - a pervasive underlying borrowing cause whichimpacts all other cash flow determinants. Profitability Measures: Gross Margin % Gross Margin / Revenue SG&A % SG&A / Revenue Operating Efficiency Measures: Receivables in days A/R / Revenue per Day Note: Revenue per Day Revenue / 365 Inventory in days Inventory / Revenue per Day Payables in days A/P / Revenue per Day
C. Mulford: Cash Flow Analysis, p. 13Cash Flow Variance AnalysisThe key determinants of changes in the components of Coreoperating cash flow can be used to perform a two-way cash flowvariance analysis.That is, reasons for changes in the components of Coreoperating cash flow can be identified as being caused by 1)growth or 2) an inherent change in the underlying profitabilityor efficiency of the firm.In measuring the impact on Core operating cash flow caused bygrowth, prior year profitability and efficiency measures areassumed to remain unchanged in the current year, allowing thecash impact of growth to be isolated.In measuring the impact on Core operating cash flow caused bychanges in profitability or efficiency measures, the change fromthe prior year in the relevant profitability or efficiency measureis applied to current year results.On the following pages, selected financial statement and cashflow data for Industrial Services, Inc., a growth firm, areprovided.
C. Mulford: Cash Flow Analysis, p. 14Industrial Services, Inc.Comparative Income StatementsYears Ended Mar. 31, 2018 and 2017(Amounts in 000's)SalesCost of Goods Sold (incl. dep'n of 200 in both years)Gross ProfitSG&APretax Operating IncomeTax ProvisionNet Income20182017 15,104 12,8009,0626,0424,8331,209399 8107,9364,8643,8401,024389 635Industrial Services, Inc.Comparative Balance SheetsYears Ended Mar. 31, 2018 and 2017(Amounts in 000's)20182017CashA/R, netInventoryCurrent Assets 8952,9794,4698,343 2,1002,1043,9138,117PP&E, netTotal Assets3,595 11,9383,795 11,912A/PTaxes PayableCurrent Liabilities 59636632 1,3481041,452Deferred Tax LiabilityCommon StockRetained EarningsTotal Liab. and S/H Equity4964,0006,810 11,9384604,0006,000 11,912
C. Mulford: Cash Flow Analysis, p. 15Industrial Services Cash Flow StatementYear Ended March 31, 2018Revenue 15,104Change in receivables(875)Cash from revenueCost of revenue (excl. depn of 200)(8,862)Change in Inventory(556)Change in A/P(752)Cash cost of revenueCash gross marginCash Operating ExpenseCore operating cash flowOther recurring cash receiptsTotal Tax ProvisionInc (Dec) in Deferred Tax LiabilityInc (Dec) in Income Taxes PayableIncome Taxes PaidCash available for debt service ,205)Interest paidOperating cash flow(0)(1,205)Capital ExpendituresFree cash flow0(1,205)InvestmentsChange in cash and equivalents before financing0(1,205)Required principal payments on LT debtDividends on common stockShort-term debtLong-term debt financingFinancing transactionsChange in cash and equivalents after financing(0) 0(1,205)
C. Mulford: Cash Flow Analysis, p. 16Key points noted in the accompanying financial statements andnotes: Sales and earnings are up 18% and 28% respectively in2018 over 2017. The company is profitable, generating an operating profit of 1,209 in 2018 and net income of 810. Core operating cash flow was an outflow of 774. Operating cash flow was an outflow of 1,205 andcorresponded with the decrease in cash. The companyfinanced its cash needs internally.In discussions with management, the following was learned: The increase in SG&A was due mainly to an increase inmarketing costs accompanying a new sales campaign. The cash balance is uncomfortably low and insufficient tofinance an anticipated growth in working capital needed tosupport future growth in operations. Additions to PP&E are needed to increase production levelsneeded to support anticipated sales increases. The company took advantage of vendor cash discounts forearly payment for the first time in 2018.
C. Mulford: Cash Flow Analysis, p. 17Required:1) Use two-way cash flow variance analysis to determine thecauses of the cash flow drain. Specifically, for the change ineach component of Core operating cash flow, determine theextent to which 1) growth and 2) a change in the firm'sunderlying profitability or efficiency was the explanatoryfactor.2) What is the importance of determining the extent to whichgrowth or changes in profitability and efficiency contributedto the firm's cash needs?3) If the firm is generating an outflow for Core operating cashflow, how can it service new financing needed for PP&Eadditions?
C. Mulford: Cash Flow Analysis, p. 18Industrial Services, Inc.Cash Flow Variance AnalysisYears Ended Mar. 31, 2018 and 2017Selected Financial Statement Data:20182017Inc (Dec)Sales 15,104Cost of Goods Sold (excl. depn of 200)8,862Gross Margin (excl. depn)6,242SG&A4,833Pretax Income1,209 12,8007,7365,0643,8401,024 , netInventoryA/P2,9794,469596
C. Mulford: Cash Flow Analysis, p. 19Profitability Measures:Gross margin Gross margin% (Gross margin / Revenue):2018 (Yr2)Revenue15,104Gross margin6,242Gross margin%41.33%2017 (Yr1)12,8005,06439.56%Cash Impact of Growth Cash Impact of GM% Rev inc x Yr 1 GM%Yr2 Rev x GM% incCash Impact of Growth Cash Impact of GM% Total Cash Impact2,304 x .3956 15,104 x .0177 Inc (Dec)2,3041,1781.77%9112671,178Profitability Measures:SG&A –SG&A% (SG&A / Revenue):RevenueSG&ASG&A%2018 (Yr2)15,1044,83332.00%2017 (Yr1)12,8003,84030.00%Inc (Dec)2,3049932.00%Cash Impact of Growth Cash Impact of SG&A% ( Rev inc) x Yr1 SG&A%Yr2 Rev x ( SG&A% inc) (Outflow)Cash Impact of Growth Cash Impact of SG&A% Total Cash Impact(2,304) x .30 15,104 x (.02) (691)(302)(993)
C. Mulford: Cash Flow Analysis, p. 20Operating Efficiency Measures:Accounts receivable –Days Receivables (A/R / Revenue per Day):(Note: Revenue per Day Revenue / 365)RevenueRevenue per DayA/RDays ReceivablesCash Impact of Growth Cash Impact of Days Rec Cash Impact of Growth Cash Impact of Days Rec Total Cash Impact2018 (Yr2)15,10441.3812,97971.989Cash Impact of Growth Cash Impact of Days Inv Total Cash ImpactInc (Dec)2,3046.31387511.991( Rev per Day inc) x Yr1 Days Rec.Yr2 Rev per Day x ( Days Rec. inc)(Outflow)(6.313) x 59.998 (379)41.381 x (11.991) (496)(875)Inventory –Days Inventory (Inventory / Revenue per Day):2018 (Yr2)Revenue15,104Revenue per Day41.381Inventory4,469Days Inventory107.996Cash Impact of Growth Cash Impact of Days Inv 2017 (Yr1)12,80035.0682,10459.9982017 (Yr1)12,80035.0683,913111.583Inc (Dec)2,3046.313556(3.587)( Rev per Day inc) x Yr1 Days Inv.Yr2 Rev per Day x ( Days Inv. inc)(Outflow)(6.313) x 111.583 (704)41.381 x 3.587 148(556)
C. Mulford: Cash Flow Analysis, p. 21Accounts Payable –Days Payables (A/P / Revenue per Day):2018 (Yr2)Revenue15,104Revenue per Day41.381A/P596Days Payables14.403Cash Impact of Growth Cash Impact of Days Pay Cash Impact of Growth Cash Impact of Days Pay Total Cash Impact2017 (Yr1)12,80035.0681,34838.440Inc (Dec)2,3046.313(752)(24.037) Rev per Day inc x Yr1 Days Pay.Yr2 Rev per Day x Days Pay.inc(Outflow)6.313 x 38.440 24341.381 x (24.037) (995)(752)To facilitate organization of the financial statement data andstatistics needed to isolate the cash impact of growth andchanges in profitability and efficiency, the following worksheetis provided.The blank worksheet is followed by a completed worksheet forIndustrial Services, Inc.
C. Mulford: Cash Flow Analysis, p. 22CASH IMPACT WORKSHEETName of Company:Summary of Key Statistics:Yr2:Yr1:Inc. (Dec.)RevenueRevenue per DayCGS (excl. depn)Gross margin (excl. depn)GM% (excl. depn)SG&A expense (excl. depn)SG&A% (excl. depn)A/RDays ReceivablesInventoryDays InventoryA/PDays Payables
C. Mulford: Cash Flow Analysis, p. 23CASH IMPACT WORKSHEET (Cont'd)Name of Company:Key Ratios:Gross margin (GM%):Cash Impact of GrowthCash Impact of GM%Inc (Dec) Gross marginFormula:Year2:Inflow (Outflow): Rev inc x Yr 1 GM%Yr2 Rev x GM% incSG&A Expense (SG&A%):Cash Impact of Growth( Rev inc) x Yr1 SG&A%Cash Impact of SG&A% Yr2 Rev x ( SG&A% inc)Dec (Inc) SG&A ExpenseA/R (Days Receivables):Cash Impact of Growth( Rev per Day inc) x Yr1 Days RecCash Impact of Days Rec Yr2 Rev per Day x ( Days Rec inc)Dec (Inc) A/RInventory (Days Inventory):Cash Impact of Growth( Rev per Day inc) x Yr1 Days InvCash Impact of Days Inv Yr2 Rev per Day x ( Days Inv inc)Dec (Inc) InventoryA/P (Days Payables):Cash Impact of Growth Rev per Day inc x Yr1 Days PayCash Impact of Days Pay Yr2 Rev per Day x Days Pay incInc (Dec) A/P
C. Mulford: Cash Flow Analysis, p. 24CASH DRIVERS REPORTCritical Ratios:Yr 2Yr 1Net Sales Growth %Gross Margin %SG&A %Operating cushion (Gross - SG&A)%Receivables in DaysInventory in DaysPayables in DaysBreakdown of Cash ImpactCash cycleCash impact of growth:Yr 2Cash impact of growth on gross marginCash impact of growth on SG&ACash impact of growth on operating cushionCash impact of growth on receivablesCash impact of growth on inventoryCash impact of growth on accounts payableCash impact of growth on operating working capitalTotal cash impact of growthCash impact of changes in operating cushion and operating working capital days:Cash impact of change in gross marginCash impact of change in SG&A%Cash impact of change in operating cushionCash impact of change in receivables daysCash impact of change in inventory daysCash impact of change in payables daysCash impact of change in operating working capital daysCash impact of change in operating cushion & wk cap days
Cash Analysis, page:25CASH IMPACT WORKSHEETName of Company: Industrial Services, Inc.Summary of Key Statistics:Yr2:2018Yr1:2017Inc. (Dec.)RevenueRevenue per DayCGS (excl. depn)Gross margin (excl. depn)GM% (excl. depn)SG&A expense (excl. depn)SG&A% (excl. 1781.77%9932.00%A/RDays ReceivablesInventoryDays InventoryA/PDays 4.037)
Cash Analysis, page:26CASH IMPACT WORKSHEET (Cont'd)Name of Company: Industrial Services, Inc.Year2: 2018Key Ratios:Gross margin (GM%):Cash Impact of GrowthCash Impact of GM%Inc (Dec) Gross marginFormula:Inflow (Outflow): Rev inc x Yr 1 GM%Yr2 Rev x Rev% inc9112671,178SG&A Expense (SG&A%):Cash Impact of Growth( Rev inc) x Yr1 SG&A%Cash Impact of SG&A% Yr2 Rev x ( SG&A% inc)Dec (Inc) SG&A Expense(691)(302)(993)A/R (Days Receivables):Cash Impact of Growth( Rev per Day inc) x Yr1 Days RecCash Impact of Days Rec Yr2 Rev per Day x ( Days Rec inc)Dec (Inc) A/R(379)(496)(875)Inventory (Days Inventory):Cash Impact of Growth( Rev per Day inc) x Yr1 Days InvCash Impact of Days Inv Yr2 Rev per Day x ( Days Inv inc)Dec (Inc) Inventory(704)148(556)A/P (Days Payables):Cash Impact of Growth Rev per Day inc x Yr1 Days PayCash Impact of Days Pay Yr2 Rev per Day x Days Pay incInc (Dec) A/P243(995)(752)
Cash Analysis, page:Critical Ratios:CASH DRIVERS REPORTYr 2 (2018)Net Sales Growth % p.14 (15,104–12,800 2,304)27Yr 1(2017)(2,304/12,800 18%) 18%Gross Margin % (excl. depn) p. 1941.33%39.56%SG&A % (excl. depn) p. 1932.00%30.00%Operating cushion (Gross - SG&A)% (excl. depn)9.33%9.56%Receivables in Days p. 2071.98959.998Inventory in Days p. 20107.996111.583Payables in Days p. 2114.40338.440Cash cycle165.58133.14Breakdown of Cash ImpactCash impact of growth:Cash impact of growth on gross margin p. 19Cash impact of growth on SG&A p. 19Cash impact of growth on operating cushionYr 2911(691)220Cash impact of growth on receivables p. 20(379)Cash impact of growth on inventory p. 20(704)Cash impact of growth on accounts payable p. 21243Cash impact of growth on operating working capital(840)Total cash impact of growth(620)Cash impact of changes in operating cushion and operating working capital days:Cash impact of change in gross margin p. 19267Cash impact of change in SG&A% p. 19(302)Cash impact of change in operating cushion(35)Cash impact of change in receivables days p. 20Cash impact of change in inventory days p. 20Cash impact of change in payables days p. 21(496)148(995)Cash impact of change in operating working capital days(1,343)Cash impact of change in operating cushion & working capital days(1,378)
Cash Analysis, page:28Core Operating Growth ProfileA Closer Look at the Profiles ofCash Generators and Cash ConsumersAs Revenues GrowIt is a generally accepted view that growth requires investments of cash.In this view, cash is needed for permanent investments in current assetssuch as receivables and inventory to support growth. As revenues grow,increasing amounts must be carried in receivables and inventory. Othersuch assets include prepaid expenses.Providing cash to help finance these investments are vendor-relatedliabilities such as accounts payable and accrued expenses payable, andcustomer financing such as deferred revenue.In actuality, some companies can grow at significant rates and stillprovide core operating cash flow as they grow. In fact, the faster theygrow, the more positive core operating cash flow they generate.At other companies, very modest growth may result in significant cashneeds.Knowing a company’s profile – whether it is a cash generator or cashconsumer with growth – is vital in understanding financial performance.
Cash Analysis, page:29Core operating growth profile -The capacity of a firm to generate core operating cash flow as it grows reflecting acombination of its operating cushion and operating working capital requirements,expressed as a percentage of revenue. It is measured as operating cushion % lessoperating working capital to revenue %. It is forward looking and reports theamount of core operating cash flow that can be expected for any measured amountof growth in revenue under the assumption that a firm's current mix of operatingcushion and operating working capital remains unchanged. A firm with a positiveoperating growth profile can grow operations and produce increasing amounts ofcore operating cash flow. A firm with a negative operating growth profile willrequire other sources of cash to support revenue growth.The operating cushion % reflects the contribution of a 1 dollar increasein revenue to operating profit before non-cash expenses likedepreciation. If working capital needs were non-existent, then theoperating cushion % would be the core operating growth profile.The higher the operating cushion %, the more cash a company willgenerate as it grows. Consuming that cash are increasing needs forreceivables and inventory, less payables, as revenues grow.Stated another way, the higher the operating cushion % and the lowerthe cash cycle, the more cash a company will generate (or the less it willconsume) as it grows revenue.In 2017, Industrial Services had an operating cushion % of 9.56% and acash cycle of 133.14 days. During the ensuing 2018, under the burdenof that profile of operating cushion % and cash cycle, the companyconsumed 620 in core operating cash flow as it grew revenues by 2,304 or 18%.
Cash Analysis, page:30Developing the Core Operating Growth ProfileInstead of reporting the cash cycle in days, let us report it in terms of apercent of revenue.That is, Receivables in days of 59.998 days becomes 16.44% (2,104 /12,800), reflecting the % of every revenue dollar that is uncollected atyear-end. Inventory in days of 111.583 days becomes 30.57% (3,913 /12,800), reflecting the % of every revenue dollar must be carried ininventory. Payables in days of 38.440 becomes 10.53% (1,348 /12,800), reflecting the % of every revenue dollar for which financing isprovided by vendors.As an aside, note that while a days statistic, such as A/R days, ismeasured as A/R / (revenue / 365), in percent terms we are simplymeasuring A/R / revenue and leaving out the 365 computation. The %approach still reflects the relative investment needed in A/R.Armed with % terms, we can now measure Industrial Services’ coreoperating growth profile in terms of revenue.As of 2017 year end Industrial Services’ Core operating growth profilewas:Gross margin% (excl. depn)SG&A% (excl. depn)Operating cushion %39.56%- 30.00% 9.56%A/R to revenue %Inventory to revenue %A/P to revenue %Working capital %*- 16.44%- 30.57% 10.53%- 36.48%Core operating growth profile- 26.92%*Denotes % of 365 day year tied up in working capital.
Cash Analysis, page:31Applying the Core Operating Growth ProfileFor Industrial Services, a negative core operating growth profile of –26.92% indicates that for every 1 increase in revenue, the company willconsume 26.92 cents in core operating cash flow.During 2018, Industrial Services grew revenues by 2,304. 2,304 x .2692 equals a use of cash of 620, which is the cash impact ofgrowth shown in the Cash Drivers Report.Analysts must be aware that if revenue growth is projected for thecompany, arrangements must be made to meet the projected cash needs.Improvements in the Company’s core operating growth profile willresult in less onerous cash requirements of growth.
Cash Analysis, page:32Comparing Growth ProfilesCash Generators and Cash ConsumersCore Operating Growth ProfileProfileGM%Industrial Svcs39.6%Home DepotDellMicrosoftSG&A%(30.0%)Op. Cushion% Accruals%0.0%Deferred Revenue%0.0% (36.5%)Core Op. Profile% (26.9%)A/P%WC%
Cash Analysis, page:Free Cash Growth Profile –The capacity of a firm to generate sustainable free cash flow as it grows,reflecting a combination of its core operating growth profile, income taxespaid, capital expenditures and other investments needed to supportoperations, expressed as a percentage of revenue. It is measured asoperating cushion % less operating working capital to revenue % lessincome taxes paid to revenue %, and less capital expenditures to revenue %,investment in operations-related intangibles to revenue %, and investmentin other ops-related assets to revenue %. It is forward looking and reportsthe amount of sustainable free cash flow that can be expected for anymeasured amount of growth in revenue under the assumption that a firm'scurrent mix of operating cushion, operating working capital, income taxespaid to revenue % and capital expenditures, investment in operations-relatedintangibles and investment in other ops-related assets to revenue % remainunchanged. A firm with a positive free cash growth profile can growoperations and produce increasing amounts of sustainable free cash flow. Afirm with a negative free cash growth profile will require other sources ofcash to support revenue growth.The free cash growth profile extends the core operating growthprofile metric to include taxes as a percent of revenue and capitalexpenditures as a percent of revenue.The metric measures the change in free cash flow for every dollarincrease in revenue.For Industrial Services, we don’t know the amount of income taxespaid or capital expenditures during 2017. Using 2018 figures as apercent of 2018 revenue as an approximation, we have:Income taxes paid 431 divided by revenue of 15,104 2.9%Capital expenditures 0 or 0% of revenue.The Free cash growth profile becomes:33
Cash Analysis, page:34Comparing Growth ProfilesCash Generators and Cash ConsumersFree Cash Growth ProfileProfileHome DepotDellMicrosoftCore Op. profile% - 26.9%Tax%- 2.9%0%- 29.8%Cap Exp%Free cash%Industrial Svcs
Cash Analysis, page:35Environmental Services, Inc.Identifying Borrowing CausesSelected financial statement data for Environmental Services, Inc. for the yearended March 31, 2018 are provided on the following pages. Also provided is acash flow statement prepared in the Modified UCA format.A quick review of the cash flow statement indicates that the company isexperiencing an operating cash flow drain. Core operating cash flow is an outflowof 7,176 and Operating cash flow is an outflow of 8,402.Required:1) Where has the company obtained the cash needed to meet the requirements of anegative Core operating cash flow ( 7,176), interest paid ( 348), current portion( 208), and capital expenditures ( 4,422)?2) Why has Core operating cash flow turned negative in 2018? Identify if thereasons are growth-related or due to changes in the company's operating cushionand operating working capital. Use the Cash Impact Worksheet provided to helpyou in answering this question.3) What is Environmental Services’ Core Operating Growth Profile? Free CashGrowth Profile?Note, analyzing Core operating ca
C. Mulford: Cash Flow Analysis, p. 1 Analyzing Cash Flows Selected income statement data and a cash flow statement in the UCA format are provided below for 5 cases. Each case is a variation on the income and cash flow statement for the same company. In fact
n 1987, RMA moved credit analysis from the horse-and-buggy days of traditional net-profit-plus-depreciation cash flow to the jet-age Uniform Credit Analysis (UCA) format, a variant on the Financial Accounting Standards Board’s FASB95 cash flow format. The UCA format, which calculates re
Cash flow statements AS 3 cash flow statements IAS 7 statement of cash flows Ind AS 7 statement of cash flows Bank overdraft Financing activities Cash &cash equivalents Same as IFRS Cash flows from extra ordinary items to be classified as operating, financing and investing activities. Cash flow statements do not reflect any
Meaning : It is a statement that shows flow (Inflow or outflow) of cash and cash equivalents during a given period of time. As per Accounting Standard-3 (Revised) the changes resulting in the flow of cash & cash equivalent arises on account of three types of activities i.e., Cash flow from Operating Activities. Cash flow from Investing Activities.
Actual Cash Flow Statement Analysis An Actual Cash Flow Statement shows where cash actually came from and how it was used in the operation. It can be compared with a Projected Cash Flow Statement for the same year to assess the overall operation on a cash flow basis. This can be done on a quarterly basis as the year progresses if quarters in
Cash flow from Operations Cash flow from Investing Cash flow from Financing ÎWe will need to place each cash transaction and put it in one of the above sections. Remember, the total of the cash inflows less the outflows balance to the net change in the cash account from one year to the next. ÎThis is always the total of the cash account and the
To search the Cash Flow Process , follow these steps: 1. Navigate to the Cash Flow Process Summary page. 2. Enter the Name, Description, or Folder in Search Criteria. 3. Click the Search. Only Cash Flow Process that match the search criteria are displayed. 2.3 Create Cash Flow Process To create a new Cash Flow process, perform the following .
Statement of Cash Flow (Indirect Method) Cash flow from operating activities Sources: Cash Sales and collections of A/R Uses: Cost of goods sold Cash operating expenses . however, the methodology and format are quite different. The objective of the statement of cash flow is to show the three types of activities on a pure cash basis. However .
BACHELOR OF SCIENCE IN INDUSTRIAL CHEMISTRY (Qualification type: Professional Bachelor's Degree) Qualification code: BPIY20 - NQF Level 8 (480 credits) SAQA ID: 111429, CHE NUMBER: H/H16/E114CAN Campus where offered: Arcadia Campus REMARKS a. Admission requirement(s) and selection criteria: APPLICANTS WHO OBTAINED A SENIOR CERTIFICATE BEFORE 2008: Admission requirement(s): A Senior .
