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Projecting Cash Flow

The following video is borrowed from our platform and was originally recorded for our financial modeling training program.   In the following video, we provide an in-depth guide to projecting cash flow.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. The first line is some form of income, either Net or Operating Income, depending on the business.. Adjustments are made on the operating, investing and financing cash flows.
  2. Operating Cash Flow: The change in Accounts Receivable (A/R) in the Balance Sheet (B/S) needs to be reflected in the cash flow statement. If A/R decreases on the B/S, it means we have collected more from customers and therefore the amount is added to the Cash Flow statement. 
  3. A decline in inventory on the B/S means more cash being received and needs to be added to cash flow statement. An increase in prepaids though, needs to be deducted from the cash flow statement. An increase in payables is treated similarly to the inventory adjustment adjustment. An increase in depreciation should not be reflected in the cash flow statement and is added back.
  4. Investing Activities: Increase in parts inventory is reflected by including the change as a negative on the cash flow statement. The same can be said for Land and Land expenses, in addition to Machinery and Equipment, Transport etc. 
  5. Financing: Any increase in payables means the business held onto cash longer and is therefore added back on the cash flow statement.
  6. Subtracting these cash adjustments from the beginning cash at the start of the period equals the cash at the end of the period.

I hope that this has been a useful lesson on cash flow projection.

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