Post on 24-Dec-2015
BASIC CASH FLOW MODEL
REVENUES = PRICE * VOLUME = R SALVAGE = VALUE OF CAPITAL AT
THE END OF THE PROJECT LIFE = S PROFIT = REVENUES - COM, R - COM COM = COSTS OF MANUFACTURE
CASH FLOW CALCULATION CASH BEFORE TAXES = R - COM = Cb PROFIT BEFORE TAXES = Cb - D = Pb PROFIT AFTER TAXES = Pb*(1 - TAX) =
Pa CASH AFTER TAXES = Pa + D – CAP SPREADSHEET CONFIGURATION
DISCUSSION OF CATEGORIES
YEAR YEAR IS NORMALLY STARTED WITH A
VALUE OF 1 THE VALUES BASED ON THE AMOUNTS
IN THE FIRST YEAR WHEN AMOUNTS ARE COMPOUNDED OR DISCOUNTED
WHEN TIME VALUE OF MONEY IS CONSIDERED THE FIRST YEAR VALUES WILL INCREASE OR DECREASE FROM THE CONSTANT DOLLAR VALUES
DISCUSSION OF CATEGORIES
CAPITAL, CAP INVESTED CAPITAL IS A POSITIVE VALUE
THAT IS CONSIDERED A NEGATIVE CASH FLOW – MONEY SPENT
CAPITAL SOLD AS WORKING CAPITAL OR SALVAGE HAS A NEGATIVE VALUE AND IS CONSIDERED A POSITIVE CASH FLOW – MONEY EARNED
DISCUSSION OF CATEGORIES
FIXED CAPITAL (DEPRECIABLE) WORKING CAPITAL (NOT
DEPRECIABLE) INVENTORIES OF RAW MATERIALS AND
FINISHED GOODS GOODS IN PROCESS (ESTIMATED
VALUES) SALVAGE (SUBTRACTED FROM
DEPRECIABLE TOTAL)
DISCUSSION OF CATEGORIES
FIXED CAPITAL THE EQUITY PORTION IS NORMALLY INVESTED
OVER THE INITIAL YEARS OF THE PROJECT IF A PROJECT INCLUDES DEBT/EQUITY
FINANCING THE CAPITAL INVESTED STARTS WITH THE
EQUITY INVESTMENT THE EQUITY VALUE INCREASES WITH EACH
PAYMENT TOWARDS THE NOTE EQUITY COMPONENTS ARE POST-TAX
PROFITS
DISCUSSION OF CATEGORIES
FIXED CAPITAL THE ORIGINAL TOTAL PROJECT FIXED
CAPITAL VALUE IS USED FOR CALCULATING DEPRECIATION, RATHER THAN THE EQUITY
ADDITIONAL FIXED CAPITAL INVESTMENTS• MAY BE MADE AT LATER PERIODS, DUE TO
EXPANSIONS OR PROCESS MODIFICATIONS• DEPRECIATION STARTS AT THE TIME OF THE
ADDITIONAL INVESTMENT
DISCUSSION OF CATEGORIES
WORKING CAPITAL NORMALLY INVESTED AT THE START
OF OPERATIONS CAN BE ADJUSTED EVERY YEAR,
USING TAXED PROFITS IS SOLD OFF AT THE END OF THE
PROJECT IS NOT DEPRECIABLE
DISCUSSION OF CATEGORIES
REVENUES, R POSITIVE VALUES THAT ARE CONSIDERED AS
POSITIVE CASH FLOWS BASED ON PRICE OF PRODUCT AND VOLUME CAN BE ADJUSTED TO REFLECT INITIAL START-UP
PERIOD WHEN IT MAY BE BELOW DESIGN LEVELS CAN BE ADJUSTED ANNUALLY IN TERMS OF
PRICE AND VOLUME TO PROVIDE A REALISTIC PATTERN
INCLUDES ANY BYPRODUCTS SOLD OUTSIDE THE PROCESS
NORMALLY DOES NOT INCLUDE CREDITS FOR UTILITIES GENERATED BY THE PROCESS – THESE ARE IN THE COST OF MANUFACTURE CATEGORY
DISCUSSION OF CATEGORIES
COST OF MANUFACTURE, COM POSITVE VALUES CONSIDERED AS
NEGATIVE CASH FLOWS VARIABLE COSTS
RAW MATERIALS ENERGY UTILITY CREDITS OTHER PRODUCTION BASED
CONSUMABLES
DISCUSSION OF CATEGORIES
FIXED COSTS INCLUDE INSURANCE PROPERTY TAXES (NOT INCOME
TAXES) CORPORATE AND PLANT OVERHEAD
http://www.learnenglish.org.uk/images/taxman.gif
DISCUSSION OF CATEGORIES
FIXED COSTS INCLUDE DEBT/EQUITY FINANCING COSTS FOR
LOANS THE INTEREST PORTION IS AN EXPENSE THE PRINCIPLE PORTION
IS NOT CONSIDERED AS AN EXPENSE, SO REMAINS IN THE BEFORE-TAX PROFIT CATEGORY
THE TAXED VALUE IS INCLUDED IN THE PROFIT AFTER TAXES, Pb
THE TOTAL PAYMENT TO PRINCIPLE • TRANSFERRED TO THE CAPITAL COLUMN AS A NON-
TAXED TOTAL • IS DEDUCTED FROM CASH FLOW AFTER TAXES AS A
CAPITAL EXPENSE
DISCUSSION OF CATEGORIES
REGULATED COSTS HAVE A FIXED AND VARIABLE
CHARACTER LABOR LABORATORY PLANT AND CORPORATE OVERHEAD
SUCH AS CORPORATE RESEARCH
DISCUSSION OF CATEGORIES
DEPRECIATION, DEPR CONSIDERED AS A POSITIVE PRE-TAX
EXPENDITURE THE VALUE IS CONSIDERED A POSITIVE CASH
FLOW AND IS ADDED TO THE AFTER-TAX PROFIT THE DEPRECIATION SCHEDULE IS DEVELOPED
BASED ON THE TOTAL FIXED INVESTMENT THE DATE OF INITIAL OPERATION FOR PROFIT THE DEPRECIATION METHOD USED FOR THE PROJECT
(SOYD FOR OUR PROJECT) DEPRECIATION IS NOT ADJUSTED FOR
INFLATION, BUT IT IS ADJUSTED FOR DISCOUNTED CASH FLOW CALCULATIONS
DISCUSSION OF CATEGORIES
PROFIT BEFORE TAXES, Pb
CONSISTS OF REVENUES LESS C.O.M. AND LESS DEPRECIATION
FOR FINANCING THE INTEREST PORTION IS
CONSIDERED IN THE C.O.M. BUT THE PRINCIPAL PORTION
REMAINS WITH THE REVENUES
DISCUSSION OF CATEGORIES
TAXES INCOME TAXES, NOT PROPERTY
TAXES BASED ON FEDERAL AND STATE TAX
RATES (TOTAL FOR OUR PROJECT ASSUMED TO BE 35%)
NORMALLY CONSIDERED TO BE A CONSTANT RATE OVER THE LIFE OF THE PROJECT
DISCUSSION OF CATEGORIES
TAXES WITH A LOSS A BEFORE-TAX PROFIT LOSS, WHICH RESULTS
IN CALCULATION OF A NEGATIVE TAX VALUE MUST BE CARRIED FORWARD TO A LATER YEAR (TAX
LOSS CARRY FORWARD) THERE IS NO REFUND OF NEGATIVE TAXES THE TAX FOR THE LOSS YEAR IS ZERO THE PROFIT LOSSES ARE APPLIED TO FUTURE PROFIT
GAINS TO DETERMINE THE Pb IN THE LATER YEAR THIS METHOD OF TAX LOSS ADJUSTMENT IS
SOMETIMES USED BY COMPANIES WHO AQUIRE OTHER FIRMS FOR THE PURPOSE OF PICKING UP THEIR ACCUMULATED TAX LOSS
DISCUSSION OF CATEGORIES
CASH FLOW AFTER TAXES, Ca CASH AFTER IS THE SUM OF THE PROFIT
AFTER PLUS DEPRECIATION, MINUS ANY CAPITAL CHARGES
FOR A PROJECT WITH DEBT/EQUITY FUNDING, THE PORTION OF THE NOTE PAID TO PRINCIPLE IS CONSIDERED AS A CAPITAL EXPENDITURE, SO A NEGATIVE CASH FLOW
THE CASH FLOW AFTER TAX AMOUNTS ARE THOSE THAT ARE DISCOUNTED FOR CALCULATION OF DISCOUNTED CASH FLOW RATE OF RETURN (DCRR)
DISCUSSION OF CATEGORIES
DCRR (DISCOUNTED CASH FLOWRATE OF RETURN)
MOST SPREADSHEETS HAVE A FUNCTION CALLED EITHER DISCOUNTED CASH FLOW OR INTERNAL RATE OF RETURN THAT CAN BE APPLIED TO A SPECIFIC COLUMN
FOR OUR PROJECTS, THE PRICE OF THE PRODUCT IS NORMALLY ADJUSTED TO OBTAIN THE TARGETED DCRR
DISCUSSION OF CATEGORIES
CUMULATIVE CASH FLOWS, CUM Ca CUMULATIVE CASH FLOWS ARE THE SUM
OF THE ANNUAL CASH FLOWS, Ca TYPICALLY NEGATIVE DURING THE
INITIAL PHASES OF A PROJECT, DUE TO CAPITAL EXPENDITURES
THE YEAR IN WHICH THE CUM Ca VALUE REACHES ZERO (WITHOUT
DISCOUNTING) DETERMINES THE BREAKEVEN VALUE
FOR A DCRR CALCULATION, THE CUM Ca VALUE AT THE END OF THE PROJECT IS
ZERO, BY DEFINITION