Cash Flow Analysis

ARG prepares cash flow and borrowing base modeling for manufacturers, distributors, retailers, and service industries.  ARG builds cash flow models for three primary applications: liquidity crisis, strategic management, and distressed asset issue management.  The basic ARG cash flow model for all applications is the same, with add-on analysis that is customized for the specific company, industry, users, and application.

ARG Cash Flow Modeling communicates the critical issues and measurements for debt issuers, company management, and equity holders. ARG Cash Flow Modeling provides the decision making framework for vested parties' to make good decisions based on quality information. The ARG Cash Flow Model identifies the best course of action to maximize all vested parties positions, whether it is a restructuring of the company, an orderly wind down, or something in between.

ARG believes that even forced liquidations, receiverships, or bankruptcy actions need to be completed in an orderly fashion to realize maximum recoveries for all vested parties. ARG Cash Flow Models are maximized liquidity plans based on borrower/industry viability and collateral evaluations. ARG Cash Flow and Borrowing Base Modeling that is based on good information from management and vested parties in self-evident courses of action with concurrence from all parties.

ARG Basic Cash Flow Modeling:

The length of the cash flow model depends on the application. For crisis cash flow situations, the standard 13 week model is built, whereas strategic and asset class cash flow models require varying lengths of analysis depending on the issues being resolved. Depending on the strategic/asset class project, ARG will at least forecast weekly or monthly cash flows for the next 52 weeks/12 months so that cost benefit analysis can be completed.

Basic Cash Flow Model Components:

The basic cash flow model is based on historic financial statements, management’s projections, accounts receivable dilution analysis, inventory turns/appraisals, accounts payables turns, vendor terms analysis, comprehensive debt schedule, payroll by head count, four wall analysis, continuous waterfall analysis, borrowing base and covenant compliance projections.

Income Statement and Cash Flow From Operations:

  • Revenue and Gross Margin Forecast
  • Comprehensive review of historical income statements
  • Sales and margin by customer, and viability analysis of customer base
  • Sales by SKU and vendor and product sourcing analysis
  • Four Wall Analysis (if applicable)
  • COGS analysis by bill of material, analyzing raw materials, WIP, and subcomponent parts
  • Labor schedules by product that tie into Sales by SKU
  • Other indirect costs by SKU schedules.
  • Manufacturing process analysis including Product Source to Cash time line/Cash Cycle Analysis
  • Orderly Recovery Cost Analysis if applicable
  • Review of management projections if available (Management Analysis based on the quality of projections).
  • Operating Expense Forecast

ARG schedules out all primary expenses dependent upon the operating metrics of the company. All models include:

  • Payroll schedules
  • Sales commissions
  • Advertising budget (if applicable)
  • Lease schedules for real estate and equipment rentals
  • Professional expenses
  • Interest Expense
  • Debt Schedule with detailed interest and principal payments
  • Hot keys that can quickly look at different financing terms and scenarios
  • Fixed charge coverage ratio calculation

ARG tracks income and cash flow performance in three ways. Projected, actual, and combined income/cash flows are tracked. Combined results are actual income/cash flow to date, with the remaining future forecast periods being projections. For example, on June 30 of a 52-week projection model the first six months are actual results, and the 2nd six months would be projected, so the combined 12/31 results are compared to the original full projected 52 weeks. With this approach, it is clear how the company is performing compared to projections, and what changes need to be made in order to meet the 52-week projected income and cash flow goals.

Balance Sheet and Borrowing Base Availability (LTV):

ARG projects and tracks the actual collateral and liabilities of a borrower weekly by completing roll-forwards of all pertinent accounts. From this ARG projects and tracks actual borrowing base availability in real time, and provides actual cash positions on a weekly basis. Additionally, ARG analyzes borrowing base and collateral positions using loan to value analysis thus providing the lender and borrower with weekly cash performance metrics.
ARG also typically prepares a monthly balance sheet detailing all balance sheet accounts. ARG measures borrower’s asset/liability performance in comparison to industry standards using RMA statement studies to insure that the borrower is properly managing its working capital and leverage.

Summary ARG Cash Flow/Borrowing Base Analysis:

  • Improve communications from Borrower to Bank so that decisions are made on the best possible information available
  • Access and address cash flow, collateral and borrowing base issues
  • Access the viability of the borrower with concurrence from all vested parties
  • Resolution strategies based on cash and collateral forecast either in an on-going business, orderly liquidation or a combination of both.
  • ARG has the expertise to execute whatever strategy is adopted and accepted by all vested parties whether it is a restructuring of the business or an orderly liquidation.

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