The entire process of analysing and tracking cash flow movement is called Cash Flow Analysis (CFA). Keep in mind that we need to be specific by using Numbers As Adjective, in order to know your cashflow exactly.
Let’s demonstrate how a CFA can be done using the cash flow statement of company ABC. We can read it from top to bottom, and bottom to top.
Reading from Top to Bottom for FY19
The $1.2M of cash collected from the customers was sufficient to pay its suppliers, cover its operating expenses and other overheads. Net Cash After Operations in 2019 was positive, stands at $11.8K.
Operating cash flow of $11.8K is not enough to cover interest expenses of $13.7K, debt repayment of $23.6K, with a shortfall of $25.4K for Cash After Debt Amortisation.
The shortfall is further widened by the capex requirement of $38.5K. The total financing requirement sums up to $63.9K.
They raised a long term debt and short term financing from the bank of $38.1K and $44.3K in total to meet the financing requirement as well as the company’s share buyback, total of $18.5K. Company ABC ended FY19 with breakeven cash flow.
