The above dashboard is one part of a larger model used to analyse company cash flow projections and develop suitable operating and financing strategies. It is just one part of a more comprehensive analysis.
This ‘Cash is King’ dashboard is intended to highlight the importance of working capital management. While the above financials are illustrative only, in our assignments one of our first steps would be to update the model with actual client financials, then align with client strategies and forecasts.
The light blue cells can be changed and will affect all the graphs shown.
There are two Scenarios:
• Base Case – which in a live assignment would generally be forward forecast for the company given past performance and current strategies and expectations.
• ‘Scenario’ Case – which could be a stress test or alternate scenario, but in this case would reflect an alternate working capital management approach and focus to highlight the benefits which can be achieved from such a focus.
This example dashboard then has a number of key drivers or ‘levers’ which can be changed for the Base and Scenario cases. These are kept relatively simple, so as not to introduce a lot of ‘noise’ into the analysis. The underlying model can be as simple or complex as the assignment requires, but we generally try to adhere to the KISS doctrine.
The following is a screen shot of the above dashboard, which may or may not be the same as the above ‘live’ version, which is intended to show the importance of Working Capital Management.
1. Both Base Case and Scenario Case have the same forecast parameters in relation to Operations Management
2. Scenario Case has improved Debtor Collection days and Inventory Turnover, shortening the cash conversion cycle so cash is generated sooner.
3. There is a slight improvement in profitability (due to reduced financing costs)
4. There is a great improvement in Net Debt (shorter cash conversion cycle enabling a reduction in Net Debt of approximately $3million!
This is a first step in our analysis of a client’s working capital financing requirements. We can then look at suitable finance sources, whether that be traditional asset backed lending from banks or newer approaches such as the sale of invoices in a Supply Chain Finance (SCF) style arrangement.
Different finance sources have their advantages and disadvantages which cannot be properly gauges without first doing a comprehensive Working Capital Management analysis.
Contact us to discuss your requirements further.