Cash Flow Cycle Analysis - BarrettWells · Title: Microsoft PowerPoint - CashFlow Shenzhen08.ppt...
Transcript of Cash Flow Cycle Analysis - BarrettWells · Title: Microsoft PowerPoint - CashFlow Shenzhen08.ppt...
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1CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Cash Flow Cycle AnalysisMore Art than Science
SHENZHEN AUGUST 2008
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© Copyright 2008 BarrettWells Credit Research
M2OMEANSMOTIVE
&OPPORTUNITY
TO PAY
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3CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
MEANS TO PAY IN FUTURE?No audited financial statements?Use the magical Cash Flow Cycle(Chapter 2.5)
Otherwise, use Forensic Cash Flow Analysis™
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4CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Cash Flow Cycle Analysis
No Need for a Magic Potion
No Need to be a Magician
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5CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
The magical Cash Flow Cycle is described as magical because of the way it magically causes cash to disappear.
Left uncontrolled itwill suck in cash
and lock it beyondreach; particularly in
times of risingprices or increasing
sales volumes.
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6CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
The ‘cash flow cycle’ is the time required to convert goods into cash; from the date the company pays the costs of acquisition of the goods to the date of receipt of the
cash from related sales.
DAYS PAYABLES DSO
DAYS INVENTORY
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7CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
The FormulaCash Flow Cycle
= (Days Inventory + Days Sales Outstanding) – Days Payables
Days Inventory = Inventory / (Cost of Sales / 365)Days Sales Outstanding = Trade Receivables / (Sales / 365)
Days Payables = Trade Accounts Payable / (Cost of Sales / 365)
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8CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
An Example - CorusOver the period 2002 through 2004, Corus Group Plc
evidenced a cash flow cycle of between 64 and 66 days. Hence in 2004 as its sales grew by £1.38 billion, the
extra cash that became locked up in its Cash Flow Cycle grew by £250 million.
This represented some 18% of the sales growth. In other words, for every £5 of additional sales Corus locked away almost £1 in additional working capital.
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9CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Growth in sales is extremely cash hungry in every business; unless
the components of the Cash Flow
Cycle are carefully controlled.
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10CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Corus 2005
??WORKING CAPITAL £ MIO
??CASH CYCLE DAYS
54RECEIVABLE DAYS[ DSO ]
82INVENTORY DAYS
78PAYABLE DAYS
£24mioCOST OF SALES / DAY
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11CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Corus 2005
1,392WORKING CAPITAL £ MIO
58CASH CYCLE DAYS
54RECEIVABLE DAYS[ DSO ]
82INVENTORY DAYS
78PAYABLE DAYS
£24mioCOST OF SALES / DAY
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12CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Some ‘What If?’ Illustrations
1,104(288)
46548290
480(912)
20407090
1,056(336)
44408278
1,104(288)
46547078
1,39258548278£24mio
WORKING CAPITAL
£ MIO
CASH CYCLE DAYS
RECEIVABLE DAYS[ DSO ]
INVENTORY DAYS
PAYABLE DAYS
COST OF SALES /
DAY
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© Copyright 2008 BarrettWells Credit Research
M2OMEANSMOTIVE
&OPPORTUNITY
TO PAY
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14CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Creditis anOptionto Default TWO CHOICES
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15CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
CAN PAY?
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16CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Means to Pay
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17CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
WILL PAY?
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18CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Motive to Pay
What ‘drivers’motivate someone
to pay after the goods have been
received?
PAYDON’T PAY
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19CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
Opportunity to Pay
What has to be ‘right’ in order to allow or enable
someone to pay?
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20CASH FLOW I
© Copyright 2008 BarrettWells Credit Research
《唤醒平衡表上的睡狮- 国际信用管理实用指南》
ISBN 978-988-99586-1-9
Awaken the Sleeping Lion on the Balance Sheet an Executive Summary for Global Credit Management
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