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

6

Analysing the Cash Flows of Mature Businesses

In Chapter 3, covering Start-up, Growth, Mature, Decline we introduced the typical cash flow patterns to be observed in successful businesses in the four phases of the life of a business. The purpose of this was to develop an understanding of what the cash flows should look like in the four phases and to introduce some of the drivers of each line of the cash flow. The word ‘driver’ being used to denote the fundamental economic and market forces or management decisions that causes cash flows to change.

In this chapter we are going to go into more detail about what we mean by the word ‘mature’ when used in this context. We will also look at what constitutes success from a cash flow point of view when managing a mature company and finally examine the cash flows of a number of real-world, mature businesses taken from different countries around the world.

WHAT DO WE MEAN BY ‘MATURE’?

Earlier in the book I made the point that all businesses want to grow and that generally a mature business is no longer growing the volume of its output significantly and hence has reduced investment needs compared to a growth business. However, these insights, whilst useful, are insufficient if we are seeking to understand the cash flows of mature businesses properly.

THE FIRST PROBLEM: INFLATION

Table 6.1 has been assembled from data sets maintained by the International Labour Organisation in Geneva. I am indebted to them for this dataset. It shows the ...