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Cash Flow and Financial Planning

Learn the intricacies of cash flow analysis, financial planning, and budgeting; master depreciation methods and statement of cash flows. Explore cash management strategies and strategic financial planning to achieve short and long-term goals.

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Cash Flow and Financial Planning

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  1. Cash Flow and Financial Planning

  2. Outline • Introduction • Analysing Cash Flows • The Financial Planning Process • Cash Budgets • Pro forma statements

  3. Introduction • Depreciation • Accounting vs Tax • Depreciable value = all cost necessary to get asset into condition needed to use the asset less salvage/residual value • Depreciable life • Depreciation methods • Straight line • Reducing balance • Sum of years

  4. Statement of Cash Flows • Purpose: • analyse cash flows • Analyse strength of business • Analyse funding decisions • Analyse investing decisions

  5. Operations Investing Financing

  6. Cash Flows in pictures

  7. Cash from Operations • Net profit • Adjusted for non-cash movements: • Depreciation • Bad Debts • Impairment • Working capital movements • Changes in accounts receivable • Changes in Inventory • Changes in accounts payable • Changes in accrued expenses • Changes in other current assets and liabilities Use T-Accounts when not sure

  8. Operating Cash Flows (OCF) • OCF = NOPAT + Depreciation • Nopat = EBIT x (1-T) • Therefore OCF = EBIT x (1-T) + Depreciation • EBIT = Operating Profit (Earnings before Interest and Tax)

  9. Free Cash Flow (FCF) • FCF = OCF – CAPEX – Changes in Working Capital • FCF = OCF – Net non-current investment – Net current asset investment • NNCI = Change in net non-current + depreciation X

  10. Financial Planning Process Guide Strategic Cash Planning Operational Profit Planning Long Term Short Term Co-ordinate Control

  11. Long-Term Financial Plans • Bigger picture • 2 – 10 years

  12. Short Term (operating) Long-term Financing plan Non-Current Asset layout plan Cash Budget Current Balance Sheet

  13. Sales Forecast • External • Internal • Cash Receipts (Lagged) • Sales receipts • Other receipts • Cash Disbursements (Lagged) • rent • Wages and salaries • Tax • Interest • Dividends • Principal loan repayments

  14. Cash Receipts - Cash Disbursements = Net Cash Flow + Beginning Cash - Desired Minimum cash balance = Required Total financing / Excess cash balance

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