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Financial Analysis 7 cash drivers

Financial Analysis 7 cash drivers. Accountsreceivablemgmt.com. 7 Cash Drivers. Cash impact due to Sales Growth or Reduction Cash impact due to Gross Profit Margin Cash impact due to cost of SG & A Cash impact due to accounts receivable Cash impact due to inventory

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Financial Analysis 7 cash drivers

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  1. Financial Analysis7 cash drivers Accountsreceivablemgmt.com

  2. 7 Cash Drivers • Cash impact due to Sales Growth or Reduction • Cash impact due to Gross Profit Margin • Cash impact due to cost of SG & A • Cash impact due to accounts receivable • Cash impact due to inventory • Cash impact due to accounts payable • Cash impact due to Capital Spending Accountsreceivablemgmt.com

  3. 7 Cash Drivers Cash impact due to Sales Growth or Reduction • Firstly we need to know if the company is operating at a profit or a loss. • If you operate at a loss increasing sales just means a greater loss and a greater drain on cash. • However since most company operate when the intent to make profit we should consider that increase in sales generally results in an increase in cash by the same margins as the profit. Accountsreceivablemgmt.com

  4. Cash impact due to Sales Growth or Reduction • What impacts Sales ? • Just about everything Right • Market forces ( technology, competition, regulations ) • Human resources ( availability, Turnover, competencies) • Supplier ( availability, competitiveness, substitutes) • Clients ( availability, competition to markets, the barriers to entry ) • Company Projects ( modernization, expansion Accountsreceivablemgmt.com

  5. 7 Cash Drivers • Cash impact due to Gross Profit Margin (Cost of sales ) Accountsreceivablemgmt.com

  6. Cash impact due to Gross Profit Margin (Cost of sales ) • What impacts Cost of Sales ? • Market forces ( technology, competition, regulations ) • Human resources ( availability, Turnover, competencies) • Supplier ( availability, competitiveness, substitutes) • Clients ( availability, competition to markets, the barriers to entry ) • Company Projects ( modernization, expansion Accountsreceivablemgmt.com

  7. 7 Cash Drivers • Cash impact due to cost of SG & A • (operating expense) Accountsreceivablemgmt.com

  8. Cash impact due to cost of SG & A ( operating expense) • What impacts operating expense ? • Market forces ( technology, competition, regulations ) • Human resources ( availability, Turnover, competencies) • Supplier ( availability, competitiveness, substitutes) • Clients ( availability, competition to markets, the barriers to entry ) • Company Projects ( modernization, expansion Accountsreceivablemgmt.com

  9. 7 Cash Drivers • Cash impact due to accounts receivable • Firstly the impact is in relations to sales . The absolute number has no value unless it’s in relations to sales. • Which is why we often refer to as the DSO (days of sales outstanding ) of a company. One can also look to a % of account receivable over sales. Accountsreceivablemgmt.com

  10. Cash impact due to accounts receivable • What impacts Accounts Receivable ? • Market forces ( technology, competition, regulations ) • Human resources ( availability, Turnover, competencies) • Clients ( availability, competition to markets, the barriers to entry ) Accountsreceivablemgmt.com

  11. 7 Cash Drivers • Cash impact due to inventory Accountsreceivablemgmt.com

  12. Cash impact due to inventory • What impacts Inventory level ? • Market forces ( technology, competition, regulations ) • Supplier ( availability, competitiveness, substitutes) • Clients ( availability, competition to markets, the barriers to entry ) • Company Projects ( modernization, expansion Accountsreceivablemgmt.com

  13. 7 Cash Drivers • Cash impact due to accounts payable Accountsreceivablemgmt.com

  14. Cash impact due to accounts payable • What impacts Accounts payable ? • Market forces ( technology, competition, regulations ) • Supplier ( availability, competitiveness, substitutes) • Clients ( availability, competition to markets, the barriers to entry ) • Company Projects ( modernization, expansion Accountsreceivablemgmt.com

  15. 7 Cash Drivers • Cash impact due to Capital Spending • Often enough concerns modernization, big project Accountsreceivablemgmt.com

  16. Likely Course of Cash • Internal Operations ( 5 cash drivers ) • Additional equity or owner’s capital contributions • Possible new investors, recapitalization and restructuring of Debt. • Disposition of non-operating assets • (i.e. Sales and leaseback ) • Additional borrowings • Restructuring of Debt • Liquidation of company’s assets • Sales of assets • Takeover a company • Merge with a company Accountsreceivablemgmt.com

  17. At the End of the day you should be able to draw a portrait of your client on several fronts and understand if he’s worth saving to what degree and possibly how you can help to save him.. • Company structure and key players • Management history and experience • Future plans of the business • business structure of operations Accountsreceivablemgmt.com

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