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Financial
Planning
Financial Planning

Cash Flow
 Understanding Cash Flow

Cash flow is the amount of cash that

comes in and goes out of a company.
Businesses take in money from sales
as revenues and spend money on
expenses. 
 Understanding Cash Flow

  It is essential for assessing a

company’s liquidity, flexibility, and
overall financial performance.
 Understanding Cash Flow

Positive cash flow indicates that a 

company's liquid assets are increasing,
enabling it to cover obligations, reinvest in
its business, return money to
shareholders, pay expenses, and provide a
buffer against future financial challenges. 
 Understanding Cash Flow

Cash flows can be analyzed using the 

cash flow statement, a standard financial
statement that reports on a company's
sources and usage of cash over a specified
time period. 
 Understanding Cash Flow

 Important to remember: Cash flow

can be negative when outflows are
higher than a company's inflows.
 Special Considerations

There are three critical parts

of a company's financial
statements:
 Special Considerations

1. The balance sheet, which

gives a one-time snapshot of
a company's assets and
liabilities.
 Special Considerations

2. The income statement,
which indicates the
business's profitability during
a certain period.
 Special Considerations

3. The cash flow statement, which acts

as a corporate checkbook that reconciles
the other two statements. It records the
company's cash transactions (the inflows
and outflows) during the given period.
 Types of Cash Flow

1. Cash Flows From Operations (CFO)

or operating cash flow, describes money
flows involved directly with the
production and sale of goods from
ordinary operations. 
 Types of Cash Flow

2. Cash Flows From Investing (CFI)

or investing cash flow reports how
much cash has been generated or
spent from various investment-related
activities in a specific period. 
 Cash Flow vs. Profit

What is the difference between

Cash Flow and Profit?
 Cash Flow vs. Profit

Cash flow is the money that goes in and

out of a business.
Profit, on the other hand, is specifically
used to measure a company's financial
success or how much money it makes
overall.
 Cash Flow vs. Profit
What is Cash Flow What is Profit
 How to Analyze Cash Flows

a. Debt Service Coverage Ratio

(DSCR)
The debt service coverage ratio
(DCSR) is used in corporate finance to
measure the amount of a company's
cash flow that's available to pay its
current debt payments or obligations.
 How to Analyze Cash Flows

a. Debt Service Coverage Ratio

(DSCR) formula
500,000
= 0.91
450,000 + 100,000
 How to Analyze Cash Flows

a. Debt Service Coverage Ratio

(DSCR) interpretation
A debt-service coverage ratio of higher than 1.00
0.91 < 1.00 indicates the borrower can still pay their debts, even
if their income dips slightly. On the other hand, a
debt-service coverage ratio below 1.00 can raise red
flags for a lender, since this ratio suggests the
borrower lacks the cash to cover all of its debts
 How to Analyze Cash Flows

b. Free Cash Flow (FCF)

Free cash flow represents the amount
of cash generated by a company after
paying expenses to run the business and
maintain capital assets. It is a measure of
profitability to analyze the cash a
company has on hand available to use
freely. Hence the name “free cash flow.”
 How to Analyze Cash Flows

Free Cash Flow (FCF) formula

400,000 = 700,000 – 300,000

 Companies that have rising and stable free cash flow will
have options to deploy capital and earn more.
 How to Analyze Cash Flows

Levered and Unlevered

Free Cash Flow
 Levered free cash flow (LFCF) is the amount of cash
a business has after it has met its financial
obligations.

 Unlevered free cash flow (UFCF) is the money the

business has before paying its financial obligations.
 How to Analyze Cash Flows

Unlevered free cash flow = EBITDA - CAPEX  - Working Capital – Taxes

The formula for unlevered free cash flow uses 

earnings before interest, taxes, depreciation and amortization
 (EBITDA), and capital expenditures (CAPEX), which represents the
investments in buildings, machines, and equipment. It also uses
working capital, which includes inventory, accounts receivable, and
accounts payable.
 How to Analyze Cash Flows

What Is Free Cash Flow

and Why Is It Important?
 How to Analyze Cash Flows

Do Companies Need to
Report a Cash Flow
Statement?
 How to Analyze Cash Flows

Do Companies Need to
Report a Cash Flow
Statement?
PLAY VIDEO
 Presenters:

ROCHELL M. SOLIMAN
MARIEL H. MIRANDA KAREN JOY G. ALGABRE

DIEZLE DEL PILAR SELLE MAGAT MA. CORAZON C. MANINANG

Thank
You
SEE YOU NEXT TIME