Here is the formula:<\/p>\n\n\n\n
Opening Cash + Free Cash Flow (FCF) = Cash Available for Debt Service \u2013 Debt Service = Closing Cash<\/strong><\/p>\n\n\n\n Most CFOs are worried whether they will have enough cash to service debt.<\/p>\n\n\n\n But even if there is no debt, the worry whether the company will need one remains.<\/p>\n\n\n\n So, understanding your company\u2019s liquidity is important from both operational and strategic level.<\/strong><\/p>\n\n\n\n ________<\/p>\n\n\n\n The formula above is easy to comprehend, but a bit more difficult to calculate if you don\u2019t have a Cash flow planning model.<\/p>\n\n\n\n It can be anything from a fully detailed 3-statements model to a simple spreadsheet under the direct cash flow method.<\/p>\n\n\n\n Whatever suits your needs.<\/p>\n\n\n\n The point about the liquidity is not predicting the exact figure but giving you an idea how much cash you would have should the assumptions \/ forecast materialize.<\/strong><\/p>\n\n\n\n The results will give you possible solutions, <\/strong>whether to the liquidity issues or if you have extra cash to spend.<\/p>\n\n\n\n Please note that the formula above does not include discretionary decisions like sale of assets \/ parts of business, equity issuance, acquisitions, new debt intake, etc.<\/p>\n\n\n\n These may be solutions to your liquidity problems, but the point is to understand whether your company generates a healthy cash flow or not.<\/p>\n\n\n\n ________<\/p>\n\n\n\n Let me show you a real-life example of Italian manufacturer, recently downgraded by Moody\u2019s to Caa2 on the back of a weak liquidity.<\/p>\n\n\n\n The company had EUR 49m of cash at the end of June 2023, with EUR 94m of debt maturing in 2024.<\/p>\n\n\n\n The June 2023 LTM FCF was negative at EUR -41m, clearly indicating that another period of such FCF generation will leave the company almost out of cash and unable to service debt.<\/p>\n\n\n\n By knowing this, the company\u2019s management and the company\u2019s lenders can now act \u2013 they can create a strategy how to resolve the issue \u2013 whether they need to sell some assets or parts of business, refinance, find new investors, exit the business\u2026<\/p>\n\n\n\n ________<\/p>\n\n\n\n Forecasting liquidity gives you options.<\/strong><\/p>\n\n\n\n Options increase your company\u2019s chances for success.<\/strong><\/p>\n\n\n\n ________<\/p>\n\n\n\n CreditAnalyst(.eu) \u2013 Improving your company\u2019s cash flow.<\/strong><\/p>\n\n\n\n CreditAnalyst(.eu)<\/strong> – Credit Risk Management | Debt Advisory | Financial Planning<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Here is the formula: Opening Cash + Free Cash Flow (FCF) = Cash Available for Debt Service \u2013 Debt Service = Closing Cash Most CFOs are [\u2026]<\/span><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,22],"tags":[133,190,47,59,191],"class_list":["post-1086","post","type-post","status-publish","format-standard","hentry","category-credit-guide-2","category-credit-insights","tag-cash-flow","tag-cfo-2","tag-credit-analysis-2","tag-financial-statements-analysis","tag-liquidity"],"_links":{"self":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1086","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/comments?post=1086"}],"version-history":[{"count":1,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1086\/revisions"}],"predecessor-version":[{"id":1087,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1086\/revisions\/1087"}],"wp:attachment":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/media?parent=1086"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/categories?post=1086"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/tags?post=1086"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}