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

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.

Introduction ix

SECTION ONE HISTORIC CASH FLOW ANALYSIS

1 Understanding How Cash Flows in a Business 3

2 Understanding Cash Flows Properly 21

3 Start-up, Growth, Mature, Decline 47

4 Restating the Cash Flows of a Real Business 59

5 Restating US GAAP Cash Flows 83

6 Analysing the Cash Flows of Mature Businesses 99

7 Analysing the Cash Flows of Growth Businesses 135

8 Growth and Mature – Further Analysis Issues 153

9 Analysing the Cash Flows of Start-up Businesses 171

10 Analysing the Cash Flows of Decline Businesses 179

11 What to do about Bad Cash Flows 185

12 Cash Versus Profit as a Measure of Performance 191

13 Cash Flow Analysis and Credit Risk 201

14 Cash Flow Analysis and Performance Measurement 215

15 Analysing Direct Cash Flow Statements 223

16 Generating a Cash Flow Summary from Profit and Loss Account and Balance Sheet Data 231

17 Summarising Historic Free Cash Flow 247

SECTION TWO FORECASTING CASH FLOWS

18 Introduction 255

19 Spreadsheet Risk 263

20 Good Practice Spreadsheet Development 275

21 The Use of Assumptions in Spreadsheet Models 295

Index 305