adamriofc Cash Flow Analysis
Determines whether a business generates enough cash to sustain operations, growth, and obligations.
Methods & Core Metrics
- Direct method: cash from customers − cash paid for operations.
- Indirect method: net income + non-cash items (depreciation) ± changes in working capital.
- Free Cash Flow (FCF) = OCF − Capex — the cash truly free for dividends/debt/investment.
- Cash Runway = Current cash ÷ monthly burn rate — months before cash runs out (without additional funding).
Scope & Safety
- Use for: assessing debt repayment capacity, planning financing, detecting "earning without cash" situations.
- Do not use for: profitability assessment alone (cash flow ≠ profit) — combine with the Profit & Loss statement.
- A single positive FCF period is not a guarantee; use multi-period trends (min. 3 months) plus seasonality.
- Projected figures must be labeled as assumptions, not facts.
Worked Example
Input: OCF 150 million/month, Capex 40 million/month, cash 300 million, burn 25 million/month (if revenue stops). Output: FCF = 150 − 40 = 110 million/month; Runway = 300 ÷ 25 = 12 months. Interpretation: the business generates positive cash; still needs a 3–6 month runway buffer for emergencies.