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

14

Cash Flow Analysis and Performance Measurement

This part of the book is intended for entrepreneurs, managers, investors and others who are interested in using cash flow information to assess or monitor the viability, health or performance of a business.

Before reading this chapter it is assumed that the reader has read and digested most of the earlier chapters on summarising and evaluating cash flows in Jury’s Cash Flow Template format.

HOW CAN WE USE CASH FLOW INFORMATION?

Those who are interested in analysing business performance can use the data contained within Jury’s Cash Flow Template in a variety of ways.

When buying or valuing a business we can think of the valuation as being in two parts.

1. The value of the present (largely derived from the existing surplus cash flow generated).

2. The value of the future, which can be considered as the present value of the potential growth of the future surplus cash flows of the business.

The template provides an elegant way of summarising the existing performance of the business. A review of the historic cash flow patterns in the template will reveal the extent and cyclicality of the ability of a business to generate cash surpluses for investors. I recommend that analysts prepare a spreadsheet with sufficient history in it to see the business through a full economic cycle. Given the recent pattern of global economic behavior it may be appropriate to go back up to twelve years in order to achieve this.

Analysis of the historic ...