What to do about Bad Cash Flows
In this chapter we are going to consider how to approach the situation where we discover ‘bad’ cash flows in a business we are analysing. I am using the term ‘bad’ as shorthand for any situation where we identify a set of cash flows that is not in accordance with our understanding of what constitutes a satisfactory cash flow performance. When we are examining ‘bad’ cash flows, the context needs to be considered before we discuss what actions can be taken.
If you are approaching this situation as an analyst, you are almost certainly examining the cash flows in the context of either a credit decision or an investment decision. The questions you are seeking to answer are likely to be as follows:
If you are approaching this situation as a manager, director or entrepreneur running the business entity you will also be keen to know the answers to the questions above. However, in these circumstances, we can ask two more questions in addition to those above:
So, we will approach this subject initially from the viewpoint of the analyst, after which we will consider the problems ...