Relation profit / cash flow

N-1 N
Oct Nov Dec Jan Feb March Apr May June Jul Aug Sept Oct Nov Dec
Raw Mat Purchase 10 10 10 12 12 12 12 12 12 12 12 12 12 12 12
Sales 15 15 15 20 20 20 20 20 20 20 20 20 20 20 20

• Customers paid with a 3 month delay

• Suppliers accept also 3 month to be paid
• Stocks represent 2 month of supplies

Compute both profit and cash flow for N

Calculate cash flow – to make it simple

 Profit
 + Depreciation and amortization
 ===========================
 EBITDA
 - Change in WCR
 ============================
 Cash flow
Operating cash flow and cash flow
statement
In millions of CHF

January–June January–June
Notes 2022 2021
Operating activities
Operating profit 7 6 619 6 866
Depreciation and amortization 1 756 1 671
Impairment 741 177
Net result on disposal of businesses 52 (212)
Other non-cash items of income and expense 171 27
Cash flow before changes in operating assets and liabilities 7 9 339 8 529

Decrease/(increase) in working capital (3 059) (2 171)

Variation of other operating assets and liabilities (583) (592)
Cash generated from operations 5 697 5 766

Interest paid (438) (386)

Interest and dividend received 28 18
Taxes paid (1 931) (1 359)
Dividends and interest from associates and joint ventures 579 630
Operating cash flow 3 935 4 669
 Operating cash flow and cash flow
statement
In millions of CHF

January–June January–June
Notes 2022 2021
Operating activities
Increase Operating profit 7 6 619 6 866
in
Depreciation and amortization 1 756 1 671
EBITDA
Impairment 741 177
Net result on disposal of businesses 52 (212)
Other non-cash items of income and expense 171 27
Cash flow before changes in operating assets and liabilities 7 9 339 8 529

Decrease/(increase) in working capital (3 059) (2 171)

Variation of other operating assets and liabilities (583) (592)
Cash generated from operations 5 697 5 766

Interest paid (438) (386)

Interest and dividend received 28 18
Taxes paid (1 931) (1 359)
Dividends and interest from associates and joint ventures 579 630
Operating cash flow 3 935 4 669
 Operating cash flow and cash flow
statement In millions of CHF

January–June January–June
Notes 2022 2021
Operating activities
Operating profit 7 6 619 6 866
Depreciation and amortization 1 756 1 671
Impairment 741 177
Net result on disposal of businesses 52 (212)
Other non-cash items of income and expense 171 27
Cash flow before changes in operating assets and liabilities 7 9 339 8 529
Increase
in WCR
Decrease/(increase) in working capital (3 059) (2 171)
Investments Variation of other operating assets and liabilities (583) (592)
and Capex Cash generated from operations 5 697 5 766

Interest paid (438) (386)

Interest and dividend received 28 18
Taxes paid (1 931) (1 359)
Dividends and interest from associates and joint ventures 579 630
Operating cash flow 3 935 4 669
 Operating cash flow and cash flow
statement
In millions of CHF

January–June January–June
Notes 2022 2021
Operating activities
Operating profit 7 6 619 6 866
Depreciation and amortization 1 756 1 671
Impairment 741 177
Net result on disposal of businesses 52 (212)
Other non-cash items of income and expense 171 27
Cash flow before changes in operating assets and liabilities 7 9 339 8 529

Decrease/(increase) in working capital (3 059) (2 171)

Variation of other operating assets and liabilities (583) (592)
Cash generated from operations 5 697 5 766

Interest paid (438) (386)

Financial
Interest and dividend received 28 18
operation
Taxes paid (1 931) (1 359)
Dividends and interest from associates and joint ventures 579 630
Operating cash flow 3 935 4 669
Cash flow evolution

Starting point  year N

N N+1 N+2 N+3 N+4
Revenue 1 230 450,00 € 1 345 056,00 € 1 374 345,00 € 1 380 455,00 € 1 400 121,00 €
Contribution margin 330 657,50 € 370 769,60 € 412 020,75 € 427 659,25 € 452 267,35 €
Fixed costs 233 453,00 € 234 500,00 € 243 221,00 € 248 085,42 € 253 047,13 €
Including depreciations 45 234,00 € 53 454,00 € 70 456,00 € 85 345,00 € 112 334,00 €
Accounts receivables 307 612,50 € 497 670,72 € 530 707,65 € 725 227,50 € 804 991,55 €
Inventories 123 045,00 € 201 758,40 € 358 586,25 € 435 136,50 € 585 448,40 €
Accounts payables 307 612,50 € 295 912,32 € 258 182,10 € 217 568,25 € 146 362,10 €
CAPEX 100 000,00 € 35 000,00 € 50 000,00 € 75 000,00 €
Opening cash balance 200 000,00 €

Explain the change in cash balance

Strategies to control cash flow
For these two cases comput both profit and cash flow. Explain these situations
Which are, for each of these cases, the main point to control?
Year N

N-1 Case 1 Case 2

Turnover 900 1000 1000
Costs payable 910 990
Profit
Receivables end 100 150 110
Inventories end 30 60 35
Payables end 40 30 45
Cash flow
Change in cash flow structure: the case
of subcontractors
 A medium size company is providing products for car industry. It’s a second
rank subcontractor for a major car Cie.
 For the year N the figures are these ones
In US $ Structure of WCR
Profit
N
Revenue 2 500 000 Stock 3 month COGS
Variable COGS 500 000 3 month
Fixed Labor cost 1 250 000 Receivables Turnover
Fixed Depreciation 400 000
Payable 2 month COGS

For year N+1 you know these informations Sales and purchasing are equaly distributed over the year
• Volume of sales increase by 10%
• There is no change in purchasing price
Compute both profit and
• Labor cost increase by 5%
cash flow
• Their is no change in WCR structure
Change in cash flow structure: the case
of subcontractors
 In the year N+2 the company become direct subcontractor for the Cars Producer company.
The deal with this new customer include the following elements
 The sales volume increase by 50% while the prices must decrease by 10%
 The company must maintain a stock for 4 month of COGS
 The terms of payment for the customer are now 5 month
 the quality condition required a change in raw material. The purchase prices increase by 5%
 Because of this new market the company must change its suppliers. To limits its own risk the new
supplier accepts only 1 month term of payment
 Due to the huge increase in activity the company must increase the wages by 10%

Compute both profit and cash flow

The operating cash cycle
Cash peaks and begins to fall as expenses are
Cash paid and new inventory built
Beginning cash
balance
Inventory builds drawing
down cash Positive cash
Cash begins to build as sales
are made and receivables
collected

Need for bank debt

Negative cash

Time
Negative cash is cash minus short-term debt
11
Cash flow and organization

 Case Applix
RETURN ON INVESTMENT

never stop daring.

ROCE (Return On Capital Employed)

Capital employed

Fixed assets

Activity / Net operating profit

turnover after tax (NOPAT) or
Currents assets – EBIT
currents liabilities
(operating
working capital
required)
ROCE = NOPAT (or EBIT) / Capital employed
Structure of ROCE

NOPAT

Capital employed

Could be shared

NOPAT TURNOVER
X
TURNOVER CAPITAL EMPLOYED

 Sales profitability  Assets efficiency

Understand performance strategy via ROCE

High sales
profit.

Low sales
profit.

Low assets High assets

efficiency efficiency
Case ROCE
Period 1 Period 2
Turnover 1 000 000 1 840 000
Variable costs 420 000 720 000
Fixed costs 300 000 400 000

Fixed assets 500 000 1 200 000

WCR 200 000 600 000

• Compute ROCE ?
• Explain the evolution ?
• What are the main points to control ?
Conditions of performance
Revenue
- Cost
EBIT

Profit rate
EBITDA
ROCE
Assets efficiency
Cash flow

Cash Investment
Case Gigl
Merci de votre attention.

audencia.com