CASH FLOW CHEAT SHEET

by
Bojan
Radojicic

DEFINITIONS CASH FLOW STATEMENT (IFRS) US GAAP COMPARISON

CASH 1. Bank overdrafts are classified as financing activities.

Cash on hand and demand deposits. DIRECT INDIRECT 2. Dividends received and interest paid or received are
CASH EQUIVALENTS
always included in operating cash flows. Dividends
Short-term liquid investments convertible to known CASH FLOWS FROM OPERATING ACTIVITIES paid are always classified as financing activities.
amounts of cash and which are subject to an insignificant
risk of changes in its value. 3. Taxes paid are operating cash flows, with specific
CASH FLOWS
Cash receipts from customers Net income rules for tax benefits associated with share-based
Inflows and outflows of cash and cash equivalents.
Cash generated from operations Depreciation
compensation arrangements.

DIRECT METHOD Cash paid to suppliers an employees Gain (loss) of plant assets 4. Cash equivalents are short-term, highly liquid
Cash generated from operations Decrease (increase) in current assets investments with original maturities of three months
A method that derives the net cash provided by or used in
operating activities from major components of operating Interest paid (Decrease) increase in current liabilities
or less qualify under definition fo cash equivalents.
cash receipts and payments. Income taxes paid Changes in deferred taxes
INDIRECT METHOD
CASH RATIOS AND KPIS
A method that derives the net cash provided by or used in
operating activities by adjusting profit (loss) for the NET CASH FLOWS FROM OPERATING ACTIVITIES
effects of transactions of a non-cash nature, any deferrals CASH RATIO
or accruals of past or future operating cash receipts or
payments CASH FLOWS FROM INVESTING ACTIVITIES Liquidity ratio that measures how much current liabilities
OPERATING ACTIVITIES is covered by cash, on the balance sheet date
Cash / Current assets
The transactions and other events not classified as Acquisition of subsidiaries Sale or Purchase of fixed assets
financing or investing activities, operating activities are Effects of foreign exchange rate changes CASH CONVERSION EFFICIENCY
Purchase of property and equipment Purchase of equity instruments
the main revenue-producing activities of an entity.
FINANCING ACTIVITIES
Proceeds from the sale of equipment of other entities Compares a company's operating cash flow to its net
income, indicating how effectively it converts its profits
Activities that result in changes in borrowings of the Interest received Dividends received into cash.
entity Dividends received Operating cash flow / net income
INVESTING ACITVITIES CASH FLOW FORECAST ACCURANCY
The acquisition and disposal of long-term assets and other
investments not included in cash equivalents. NET CASH FLOWS FROM INVESTING ACTIVITIES Measures the accuracy of cash flow projections compared
to actual cash flows.
Projected CF / Actual CF
CASH FLOW DIRVERS CASH FLOWS FROM FINANCING ING ACTIVITIES DAYS CASH RESERVES
Measures how many days company can pay its expenses
with current cash on hands.
Revenue growth
rate
Sales efficiency
Customer
retention
Proceeds from the issue of share capital (Repayments of loans) Cash / Expenses for period
Proceeds from long-term borrowings New loans taken AVERAGE OVERDUE DAYS
Dividends paid Measures how many days the customers delay with
Up-selling / Pricing and payment versus agreed payment terms.
Just in time stock
Cross-seling discounts policy
NET CASH FLOWS FROM FINANCING ACTIVITIES (Overdue Receivable / Net Credit Sales) x 365

CASH RETURN ON INVESTMENT

Improvement in Loans Efficient investing CASH AT THE BEGINING OF PERIOD Evaluates the cash generated by a company's invested
cash collection rectructuring in CAPEX
capital.
Effects of foreign exchange rate changes Cash / Investment
Advance
Shorter customer
OPERATING CASH FLOWS
Longer supplier
customer
Cash flow generated from operating activities only
payment terms
payments
payment terms
CASH AT THE END OF PERIOD FREE CASH FLOW

Production Calculates the cash available after a company has met its
Labor utilization Cost controlling operating expenses and capital expenditures. It provides
efficiency
CASH CONVERSION CYCLE insight into a company's ability to invest in growth, pay
dividends, reduce debt, or repurchase shares.
Credit Suppliers Supply chain CASH BURN RATE
controlling discount optimization The Cash Conversion Cycle (CCC) is a financial
metric that measures the time it takes for a company The burn rate represents the speed at which an
to convert its investments in inventory and other unprofitable company consumes its cash reserves. In the
resources into cash inflows from sales. It provides case of a startup company, it is the rate at which a new
CASH FLOW vs EBIT
DSO DIO insights into the efficiency of a company's working
capital management and its ability to generate cash.
company is spending its venture capital to finance
overhead before generating positive cash flow from
CASH FLOW EBIT operations.
1 The CCC is typically measured in days and is
calculated using the following formula:
Cash flow is real cash EBIT profit and loss
catagory from cash flow
statements
account category and it is
used for measurement of
DPO CCC = Days Inventory Outstanding (DIO) + Days
CASH FLOWS IN VALUATIONS
Sales Outstanding (DSO) - Days Payable Outstanding
profitability
(DPO) Measures profitability. By evaluating cash flow,
2
Cash flow measures the EBIT represents earnings
1 investors can assess a company's ability to
DSO = (Accounts Receivable / Net Credit Sales) x Days Inventory Outstanding (DIO): This metric generate positive cash flows over time.
actual inflows and generated during a represents the average number of days it takes for a
365
outflows of cash during a specific accounting period, company to sell its inventory. It is calculated as Assesses financial health. Cash flow analysis helps
given period, providing a typically calculated on an follows:
Days Payable Outstanding (DPO): This metric determine a company's financial stability and
more immediate view of accrual basis. It reflects
represents the average number of days it takes for a liquidity. Positive cash flow indicates that a
the company's liquidity. revenues and expenses
company to pay its suppliers. It is calculated as DIO = (Average Inventory / Cost of Goods Sold) x 365 2 company has enough cash to cover operating
recognized irrespective of
follows: expenses, debt obligations, and future
cash movements
Days Sales Outstanding (DSO): This metric represents investments.
3 DPO = (Accounts Payable / Cost of Goods Sold) x the average number of days it takes for a company to
Cash flow, however, EBIT includes non-cash 365 collect its accounts receivable. Evaluates growth potential. Cash flow projections
allow investors to assess the future growth
excludes these non-cash items such as depreciation 3 potential of a company which is crutial factor in
items and focuses solely and amortization, which
on actual cash movements. are accounting expenses CASH FLOW FORECAST STEPS valuations.
but do not involve the
outflow of cash Determines investment return: Cash flow is
Make best estimate of revenue crucial in determining the return on investment
4 Based forecast of sales, and
forecast, based on historical historical/expected DSO make projection of
Based on loan and lease agreements (ROI) for investors. By estimating future cash
Cash flow incorporates EBIT does not consider movement in quantities and Account receivable. Based on COGS and
and loan/lease schedule make 4 flows and discounting them to their present
changes in working these working capital prices. Make sure you get sales forecast of loans and interest value, valuation models such as discounted cash
historical/expected DIO make projection of
plan from sales team. Also make expenses. Do not forget to input flow (DCF) can determine the intrinsic value of a
capital, such as adjustments. Inventories. Based on COGS expenses and
projection of COGS and gross interest and tax expense in PnL.
fluctuations in accounts historical/expected DPO make projection of company and guide investment decisions.
receivable, accounts profit. Payables.
payable, and inventory Discounted cash flow: This is the most favorable
method in company valuation as the take into
1 4 6
levels. These changes
directly impact the 2 3 5 5 account cash generation potential and time
effects, i.e. present value of cash generated.
company's cash position.
5
Cash flow accounts for EBIT does not consider Comparability across companies: Cash flow
Project salaries, operating expenses Based on investment plan Based on projected PnL and provides a standardized metric that enables
capital expenditures these investments. and all other expenses. Based on make projections of Capex. key balance sheet positions
(CapEx), which represent this and previous step make Based on projected Capex forecast, make forecast of 6 comparisons across different companies within
the same industry or sector. Investors can
the investments made by projection of profit and loss make projection of cash flow by indirect method
the company in long-term account. Calculate basic PnL ratio depreciation and amortization. evaluate the relative attractiveness of different
as described above.
assets. CapEx involves cash numbers and confirm they are in investment opportunities based on their cash
outflows and impacts the line with expectations. flow profiles.
cash flow statement

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