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Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and Using Published Cash Flow Data

Book Description

This book is the definitive guide to cash flow statement analysis and forecasting. It takes the reader from an introduction about how cash flows move within a business, through to a detailed review of the contents of a cash flow statement. This is followed by detailed guidance on how to restate cash flows into a template format. The book shows how to use the template to analyse the data from start up, growth, mature and declining companies, and those using US GAAP and IAS reporting. The book includes real world examples from such companies as Black and Decker (US), Fiat (Italy) and Tesco (UK). A section on cash flow forecasting includes full coverage of spreadsheet risk and good practice. Complete with chapters of particular interest to those involved in credit markets as lenders or counter-parties, those running businesses and those in equity investing, this book is the definitive guide to understanding and interpreting cash flow data.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Introduction
    1. THE LOGIC OF THE BOOK DESIGN
    2. COMPLEXITY
    3. THE USE OF CASE STUDIES IN THE BOOK
    4. GUIDE TO THE BOOK
  7. Section One: Historic Cash Flow Analysis
    1. Chapter 1: Understanding How Cash Flows in a Business
      1. INTRODUCTION
      2. THERE IS NOTHING NEW ABOUT BUSINESS
      3. UNDERSTANDING MONEY IN BUSINESS
      4. THE SIMPLE MANUFACTURING BUSINESS
      5. HOW DOES ANY BUSINESS GENERATE CASH?
      6. THE COMPLETE REAL BUSINESS MODEL
      7. SUMMARY OF THE CHAPTER
      8. CONCLUSION
    2. Chapter 2: Understanding Cash Flows Properly
      1. INTRODUCTION
      2. THE NATURE OF THE BEAST
      3. CASH FLOWS FROM OPERATING ACTIVITIES
      4. CASH FLOWS FROM OPERATING ACTIVITIES – DETAILED REVIEW
      5. CASH FLOWS FROM INVESTING ACTIVITIES
      6. CASH FLOWS FROM INVESTING ACTIVITIES – DETAILED REVIEW
      7. CASH FLOWS FROM FINANCING ACTIVITIES
      8. CASH FLOWS FROM FINANCING ACTIVITIES – DETAILED REVIEW
      9. THE NATURE OF THE BEAST – CONCLUSION
      10. SUMMARISING AND RESTATING CASH FLOWS FOR ANALYSIS – INTRODUCTION
      11. CONCLUSION
      12. ANALYSING THE CASH FLOWS IN THE MASTER TEMPLATE
      13. THE STATE OF PLAY
    3. Chapter 3: Start-up, Growth, Mature, Decline
      1. INTRODUCTION
      2. THE START-UP PHASE
      3. THE GROWTH PHASE
      4. THE MATURE PHASE
      5. THE DECLINE PHASE
      6. CONCLUSION
      7. SUMMARY
    4. Chapter 4: Restating the Cash Flows of a Real Business
      1. INTRODUCTION
      2. OUR OBJECTIVE
      3. THE IMPLICATION OF DIFFERENT GAAPS
      4. RESTATING THE CASH FLOWS FROM OPERATING ACTIVITIES
      5. IDENTIFYING THE OPERATING CASH MARGIN
      6. CONCLUSION
    5. Chapter 5: Restating US GAAP Cash Flows
      1. INTRODUCTION
      2. THE US GAAP CASH FLOW ANALYSIS PROCESS
      3. SOURCES OF CASH FLOW DATA
      4. RESTATING THE CASH FLOWS FROM OPERATING ACTIVITIES
      5. IDENTIFYING THE OPERATING CASH MARGIN (AFTER INTEREST AND TAX PAYMENTS)
      6. RESTATING THE CASH FLOWS FROM INVESTING ACTIVITIES
      7. RESTATING THE CASH FLOWS FROM FINANCING ACTIVITIES AND DEALING WITH THE FINAL CASH BALANCE
      8. INTRODUCING THE INTEREST AND TAXATION CASH FLOWS TO A US GAAP CASH FLOW TEMPLATE
      9. CONCLUSION
    6. Chapter 6: Analysing the Cash Flows of Mature Businesses
      1. WHAT DO WE MEAN BY ‘MATURE’?
      2. THE FIRST PROBLEM: INFLATION
      3. THE SECOND PROBLEM: THE MARKET GROWTH RATE
      4. THE THIRD PROBLEM: DO WE REALLY MEAN ‘MATURE’ COMPANY?
      5. THE FOURTH PROBLEM: WHERE MATURE BUSINESSES COMPETE
      6. IN CASH FLOW TERMS, WHAT CONSTITUTES SUCCESS FOR MATURE COMPANIES?
      7. THE CONSEQUENCES OF FAILURE TO GENERATE SUFFICIENT CASH FLOW
      8. ISSUES RELATED TO MATURE BUSINESS DIVERSITY
      9. ISSUES RELATED TO BUSINESS SIZE
      10. SUMMARY
    7. Chapter 7: Analysing the Cash Flows of Growth Businesses
      1. WHAT DO WE MEAN BY ‘GROWTH’?
      2. IRRATIONAL INVESTOR BEHAVIOUR
      3. NEGATIVE CASH FLOWS
      4. CORPORATE COLLAPSE
      5. TO SUMMARISE THIS INTRODUCTION
      6. IN CASH FLOW TERMS, WHAT CONSTITUTES SUCCESS FOR GROWTH BUSINESSES?
      7. GROWTH CASH FLOW EXAMPLES: THE SUCCESS
      8. GROWTH CASH FLOW EXAMPLES: THE INVESTOR
      9. CASH FLOW GROWTH EXAMPLES: THE ACQUIRER
      10. CASH FLOW GROWTH EXAMPLES: THE ASPIRANT
      11. SUMMARY
    8. Chapter 8: Growth and Mature – Further Analysis Issues
      1. ANALYSING NET WORKING ASSETS FROM A CASH FLOW VIEWPOINT
      2. INTERPRETING THE MOVEMENT IN NET WORKING ASSETS
      3. MOVEMENTS IN NET WORKING ASSETS – CONCLUSIONS
      4. RESTATEMENT OF THE TEMPLATE CASH FLOWS ON A NO-GROWTH BASIS
      5. WHAT DOES NO-GROWTH MEAN?
      6. PHIBRO ANIMAL HEALTH CORPORATION
    9. Chapter 9: Analysing the Cash Flows of Start-up Businesses
      1. ANALYSING THE CASH FLOWS OF A START-UP PROJECT
      2. AFTER THE POINT DEFINED ABOVE AS ‘START-UP’ EARLIER IN THIS CHAPTER
    10. Chapter 10: Analysing the Cash Flows of Decline Businesses
      1. HOW DOES DECLINE AFFECT CASH FLOWS?
      2. CONCLUSIONS ABOUT DECLINING MARKETS
    11. Chapter 11: What to do about Bad Cash Flows
      1. THE ANALYST’S VIEWPOINT
      2. CONCLUSIONS FROM THE ANALYST’S VIEWPOINT
      3. THE MANAGER’S, DIRECTOR’S OR ENTREPRENEUR’S VIEWPOINT
      4. CONCLUSION FROM A MANAGER’S VIEWPOINT
    12. Chapter 12: Cash Versus Profit as a Measure of Performance
      1. HISTORY OF THE P&L
      2. SO, WHAT CAUSES THE DIVERGENCE BETWEEN PROFIT AND CASH FLOW?
      3. WHAT ARE FUNDAMENTAL ACCOUNTING CONCEPTS?
      4. CONCLUSIONS – FUNDAMENTAL ACCOUNTING CONCEPTS
      5. CONCLUSION
    13. Chapter 13: Cash Flow Analysis and Credit Risk
      1. WHAT IS CREDIT RISK?
      2. CASH VERSUS PROFITS
      3. WHICH CASH FLOWS SHOULD WE BE INTERESTED IN?
      4. WHY INCLUDE THE DIVIDEND?
      5. BRITISH TELECOM AND 3G LICENCES
      6. CONCLUSIONS ABOUT THIS STYLE OF ANALYSIS
      7. INTEREST, DIVIDENDS AND DEBT REPAYMENT – THE IMPLICATIONS OF SIZE
      8. COVENANTING AND CASH FLOWS
      9. CONCLUSION
    14. Chapter 14: Cash Flow Analysis and Performance Measurement
      1. HOW CAN WE USE CASH FLOW INFORMATION?
      2. WHAT IS SUCCESS IN BUSINESS?
      3. CASH FLOWS AND INVESTMENT
      4. CONCLUSION
    15. Chapter 15: Analysing Direct Cash Flow Statements
      1. WHAT IS DIFFERENT ABOUT A DIRECT CASH FLOW STATEMENT?
      2. CONCLUSIONS ABOUT DIRECT CASH FLOWS
    16. Chapter 16: Generating a Cash Flow Summary from Profit and Loss Account and Balance Sheet Data
      1. THE NATURE OF THE PROBLEM
      2. SO, IS AN ESTIMATED CASH FLOW SUMMARY USEFUL?
      3. CONCLUSION
    17. Chapter 17: Summarising Historic Free Cash Flow
      1. THE ORIGIN OF FREE CASH FLOW
      2. WHAT THEN, ARE THE FREE CASH FLOWS OF A BUSINESS?
      3. THE CASH FLOW EFFECTS OF DEBT FINANCING
      4. CONCLUSION
  8. Section Two: Forecasting Cash Flows
    1. Chapter 18: Introduction
      1. FORECASTING VERSUS ANALYSING HISTORIC DATA
      2. FORECASTS AND PREDICTION
      3. REASONS FOR PREPARING CASH FLOW FORECASTS
      4. FORECASTS AND THE COST OF NEGATIVE EVENTS
      5. OTHER BENEFITS OF FORECASTING MODELS
    2. Chapter 19: Spreadsheet Risk
      1. INTRODUCTION
      2. SPREADSHEET RISK
      3. MANAGING SPREADSHEET RISK
      4. OWNERSHIP
      5. CONCLUSIONS ABOUT SPREADSHEET RISK
      6. GOOD SPREADSHEET TECHNIQUE
      7. CONCLUSIONS ABOUT SPREADSHEET RISK
    3. Chapter 20: Good Practice Spreadsheet Development
      1. DATA ENTRY, FORMATTING AND SPREADSHEET ERROR
      2. LAYOUT
      3. TYPES OF CASH FLOW SPREADSHEET MODELS
      4. CONCLUSIONS ABOUT GOOD PRACTICE SPREADSHEET DEVELOPMENT
    4. Chapter 21: The Use of Assumptions in Spreadsheet Models
      1. INTRODUCTION
      2. HOW ASSUMPTIONS ARE USED IN A SPREADSHEET
      3. THE SELECTION OF ASSUMPTIONS
      4. MACROECONOMIC ASSUMPTIONS
      5. THE APPROPRIATE AND INAPPROPRIATE USE OF ASSUMPTIONS
      6. CONCLUSIONS ABOUT FORECASTING CASE FLOWS
      7. CONCLUSIONS ABOUT CASH FLOW ANALYSIS
  9. Index