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

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Analysing the Cash Flows of Growth Businesses

In Chapter 3 on 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 cause cash flows to change.

In this chapter we are going to go into more detail about what we mean by the word ‘growth’ when used in this context. We will also look at what constitutes success from a cash flow point of view when managing a growth company and, finally, examine the cash flows of a number of real growth businesses taken from different countries around the world. As some of the commentary assumes knowledge of the previous chapter, this chapter should be read in conjunction with the previous chapter discussing the analysis of mature businesses.

WHAT DO WE MEAN BY ‘GROWTH’?

When we talk about a growth business what we usually mean is a business operating in a growth market. A growth market is a market where adoption of new products or services is taking place for the first time. Some of the big growth markets of the last 25 years have been mobile phones, computers and freight containerisation.

Growth markets are different to mature markets. In a growth market ...