Cash Flow Forecasting

and cash drivers to work out key elements in your balance sheet projec-

tion. Once the balance sheet projections have been completed, you may

then, for good measure, have to return to the profit and loss to ‘fine

tune’ certain items (such as interest expenses/income) before undertak-

ing the cash flow construction.

Balance sheet projections

Making balance sheet projections differs from the approach adopted

in the income statement projections. There are several different tech-

niques used for the different accounts in the balance sheet.

The starting point is to project items in the balance sheet directly

related to sales and income activity, known as ‘working investment’.

Key activity ratios (see Table 4.6) are used in conjunction with the pro-

jected figures derived in the income statement to calculate these items.

Cash flow forecasting of financial statements

109

Table 4.6 Completed AmaOS forecasted ratio sheet

NAME: AmaOS

LOCATION: UK

BUSINESS: Manufacturing

AUDITOR: Andersen

CONSOLIDATED: Yes

FACT SHEET 2003 2004 2005 2006 2007 2008

ROE (%) 17.85% 14.66% 13.64% 12.82% 12.15% 12.93%

ROS (%) 9.19% 8.37% 8.37% 8.37% 8.37% 9.49%

ATO 1.22 1.23 1.20 1.24 1.26 1.26

ALEV 1.59 1.42 1.36 1.23 1.15 1.08

Sales (M/MM) 614538 639120 677467 718115 761202 806874

Chg. in 3.8% 4.0% 6.0% 6.0% 6.0% 6.0%

Sales (%)

CoGS/S (%) 71.4% 66.7% 66.7% 66.7% 66.7% 66.7%

GPM (%) 28.6% 33.3% 33.3% 33.3% 33.3% 33.3%

SGA/S (%) 37.6% 24.9% 24.9% 24.9% 24.9% 23.8%

NOP/S (%) 8.9% 8.4% 8.4% 8.4% 8.4% 9.5%

TIE #N/A #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

IE/Av. FD (%) 1.00% #REF! 0.00% 0.00% 0.00% 0.00%

NPBT/S (%) 9.2% 8.4% 8.4% 8.4% 8.4% 9.5%

Inc. Taxes/ #N/A 0.0% 0.0% 0.0% 0.0% 0.0%

NPBT (%)

(continued)

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Cash Flow Forecasting

110

NPAT/S (%) 9.2% 8.4% 8.4% 8.4% 8.4% 9.5%

NPAUI/S (%) 0.9% 7.6% 7.5% 7.4% 7.3% 8.4%

Div./NPAT (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Work Investment 249112 260773.17 276419.69 293004.78 310585.08 329417.3

Chg. in WI (%) 32.6% 4.7% 6.0% 6.0% 6.0% 6.1%

WI/S (%) 40.5% 40.8% 40.8% 40.8% 40.8% 40.8%

AR DOH 53 55 55 55 55 55

INV DOH 173 172 172 172 172 172

RM DOH 22 0 0 0 0 0

WIP DOH 0 0 0 0 0 0

FG DOH 133 0 0 0 0 0

AP DOH 34 21 21 21 21 21

AE DOH 3 8 8 8 8 8

Av. GP T/O #N/A #REF! #N/A #N/A #N/A #N/A

Av. NP T/O #N/A #REF! #N/A #N/A #N/A #N/A

Av. GP/ #N/A #REF! #N/A #N/A #N/A #N/A

DepExp.

Av. AccDep./ #DIV/0! #REF! #N/A #N/A #N/A #N/A

DepExp.

Av. NP/DepExp. #N/A #REF! #N/A #N/A #N/A #N/A

Current Ratio 2.66 11.81 12.20 11.77 11.59 11.68

Quick Ratio 1.37 6.45 6.83 6.40 6.22 6.29

Coverage Ratio 2.30 2.87 3.27 4.55 6.63 11.68

CMB Leverage 0.59 0.42 0.36 0.23 0.15 0.08

% of Total Footings:

STD (CPLTD 19.8% 0.0% 0.0% 0.0% 0.0% 0.0%

CPLO)

Spont. Fin. 9.3% 7.2% 7.0% 7.3% 7.4% 7.4%

LTD 4.9% 22.4% 19.2% 11.5% 5.5% 0.0%

Grey Area 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Equity 63.0% 70.3% 73.8% 81.2% 87.1% 92.6%

CA 85.1% 85.2% 85.9% 85.7% 85.8% 86.0%

Net Plant 9.2% 9.3% 9.0% 9.3% 9.5% 9.5%

Other 5.7% 5.5% 5.1% 4.9% 4.7% 4.5%

Asset Cover 63.0% 70.3% 73.8% 81.2% 87.1% 92.6%

(TA – TSL/TA)

WC Adequacy 62.3% 91.5% 91.8% 91.5% 91.4% 91.4%

(WC/CA)

Reliance on 28.5% 101.4% 108.6% 100.5% 97.2% 98.1%

Inventory

Change in 9.0% 51.9% 9.8% 1.9% 4.2% 6.5%

WC (%)

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