How to make a Cash Flow statement This is the 3rd video of the series. After learning how to make a Profit & Loss (Income Statement), and a Balance Sheet, we now learn how to make a Cash Flow statement. The material is meant for anyone, with a focus on students, small business owners and training programs for Non-finance managers. It's based on my practice as Vice President of Finance & CFO with slides selected from the material, I teach at NYU.

1. George Benaroya
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2. George Benaroya
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AGENDA
Introduction
How to make a P&L and BS transaction for:
Sales
Cost (COGS)
SG&A Expenses
EBIDTA
Inventory
CAPEX and PPE
Depreciation
Interest
Taxes
Equity
Key financials slide
Contents

3. Finance f or Marketing Decisions
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George Benaroya
Jenny’s P&L (based on true story)
Jenny is a student at NYU and runs a high-
end shoe business on the side. A friend of
hers produces high quality, made to order
shoes in China which Jenny then sells to
wealthy shoppers in NYC for $1,000 each.
The cost to produce each pair of shoes is
$300.
Jenny prepared a P&L and BS (see here).
It’s December 31st, and her boss asked her
to make a Cash Flow statement for the full
year. To save time and go out for dinner
with her friends, she will make one for the
whole year.
H o w t o m a k e a s i
m p
l
e P & L ,
T h
e 3 m a i
n s e
c t
i
o n s
o f
a P & L ,
H o w t
o m a k
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fortune 50 0logos,fortune 50 0 l
ogosandname s,fortune 500 company logos

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George Benaroya
How to quickly make a P&L, BS and Cash Flow
1. Plug the easiest transactions first: Sales, Cost of Sales and Expenses. Net
Earnings or Net Income is the difference.
2. Leave Depreciation, Interest and Taxes for later.
3. Think about each transaction on a “cash basis”.
Book Sales to Cash or Receivables
Book COGS to Cash or Accounts Payables
Book Expenses: to Cash or Accounts Payables

5. George Benaroya
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Step 1. Sales or Revenue
Sales and Revenue are the same thing.
Jenny’s Sales per year are $120,000 and she
gets paid in cash. One client bought shoes for
$1,000 but had only $671 in cash, so she
owes her $329.
1. Book Sales first
2. Book receivables after that ($329)
3. Allocate the rest to Cash
Sales Transaction
Sales 120,000
Receivables 329
Net Effect on Cash 119,671
Balance Sheet Step 2
Assets
Cash 119,671
Accounts Receivable 329
Inventory : Marketing Merchandise -
Property & Equipment -
Total Assets 120,000
Liabilities
Accounts Payable -
Debt -
Total Liabilities -
Shareholder's Equity
Equity Capital -
Retained Earnings -
Shareholder's Equity -
Total Liabilities & Shareholder's Equity -
Income Statement
Reveneue $120,000
Cost of Goods Sold (COGS) -
Gross Profit 120,000
SG&A -
Salaries and Benefits -
Marketing Expense -
Rent and Overhead -
Depreciation & Amortization -
Interest -
Total Expenses -
Earnings Before Tax 120,000
Taxes -
Net Earnings 120,000

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Step 1.2. Cost
COGS is 30% of sales ($36,000) and
Payables are 1 month.
1. Book cost at $36,000
2. Then, the part of Cost that goes in
Payables: $3,000 (36,000 divided
by 12 times 1)
3. Then, reduce Cash by the
difference of $33,000
Income Statement
Reveneue 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A -
Salaries and Benefits -
Marketing Expense -
Rent and Overhead -
Depreciation & Amortization -
Interest -
Total Expenses -
Earnings Before Tax 84,000
Taxes -
Net Earnings 84,000
Balance Sheet
Assets
Cash 86,671
Accounts Receivable 329
Inventory -
Property & Equipment -
Total Assets 87,000
Liabilities
Accounts Payable 3,000
Debt -
Total Liabilities 3,000
Cost of Sales Transaction
Cost of sales 36,000
Payables 3,000
Net Effect on Cash (33,000)

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Step 1.3 SG&A Expenses
SG&A Expenses are 43% of sales.
Assume Jenny pays all of them with
cash
1. Book SG&A at $51,600
2. Reduce cash by the same amount
Income Statement
Reveneue $120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 29,120
Marketing Expense 10,000
Rent and Overhead 12,480
Depreciation & Amortization -
Interest -
Total Expenses 51,600
Earnings Before Tax 32,400
Taxes -
Net Earnings 32,400
Balance Sheet
Assets
Cash 35,071
Accounts Receivable 329
Inventory -
Property & Equipment -
Total Assets 35,400
Liabilities
Accounts Payable 3,000
Debt -
Total Liabilities 3,000
SG&A Expenses transaction
SG&A 51,600
Net Effect on Cash (51,600)

8. George Benaroya
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Finance f or Marketing Decisions
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1.4 EBIDTA (Earnings before Interest, Depreciation & Taxes)
If we stop here, we have EBIDTA already
We could enter our Earnings Before Tax of
$ 32,400 in the BS, in the line for Retained
Earnings.
2. The BS ties. Congratulations!
Earnings transaction
Earnings 32,400
Net Effect on Earnings 32,400
Income Statement
Reveneue 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation & Amortization -
Interest -
Total Expenses 51,600
Earnings Before Tax 32,400
Balance Sheet
Assets
Cash 35,071
Accounts Receivable 329
Inventory -
Property & Equipment -
Total Assets 35,400
Liabilities
Accounts Payable 3,000
Debt -
Total Liabilities 3,000
Shareholder's Equity
Equity Capital -
Retained Earnings 32,400
Shareholder's Equity 32,400
Total Liabilities & Shareholder's Equity 35,400

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Step 2.1 Inventory
Inventory. Jenny has an inventory of 1
month and she pays for it in 1 month
Inventory is calculated based on COGS
($36,000 divided by 12 times 1 =$3,000)
1. Book Inventory $3,000
2. Increase Payables by $3,000
Balance Sheet
Assets
Cash 35,071
Accounts Receivable 329
Inventory 3,000
Property & Equipment -
Total Assets 38,400
Liabilities
Accounts Payable 6,000
Debt -
Total Liabilities 6,000
Shareholder's Equity
Equity Capital -
Retained Earnings 32,400
Shareholder's Equity 32,400
Total Liabilities & Shareholder's Equity 38,400
Inventory transaction
Inventory 3,000
Net Effect on Payables 3,000

10. George Benaroya
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Step 2.2. Property, Plant & Equipment (PPE) & Capex
Jenny gets a 2-year loan to buy equipment
(PPE) for $10,000
1. We increase PPE by $10,000
2. We increase Debt (loan) by $10,000
Capex investment
PPE 10,000
Net Effect on Debt 10,000
Balance Sheet
Assets
Cash 34,571
Accounts Receivable 329
Inventory 3,000
Property & Equipment 10,000
Total Assets 47,900
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital -
Retained Earnings 31,900
Shareholder's Equity 31,900
Total Liabilities & Shareholder's Equity 47,900

11. George Benaroya
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Finance f or Marketing Decisions
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Step 2.3. Depreciation
The Equipment has a life of 2 years, that is,
depreciation is 50% per year.
1. Increase Depreciation $5,000
2. Reduce Earnings by $5,000 and
3. Reduce PPE by $5,000
Depreciation adjustment
PPE (5,000)
Depreciation 5,000
Net Effect on Earnings (5,000)
Income Statement
Reveneue 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation & Amortization 5,000
Interest -
Total Expenses 56,600
Earnings Before Tax 27,400
Balance Sheet
Assets
Cash 35,071
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 43,400
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital -
Retained Earnings 27,400
Shareholder's Equity 27,400
Total Liabilities & Shareholder's Equity 43,400

12. George Benaroya
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Finance f or Marketing Decisions
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Step 2.4 Interest
Jenny borrowed $10,000 for the
Equipment. The Interest is 5% ($500).
She pays interest annually at the end
of the year.
1. Increase interest by $500
2. Decrease Cash by $500
Interest adjustment
Interest 500
Net Effect on Cash (500)
Income Statement
Reveneue 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation & Amortization 5,000
Interest 500
Total Expenses 57,100
Earnings Before Tax 26,900
Balance Sheet
Assets
Cash 34,571
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 42,900
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital -
Retained Earnings 26,900
Shareholder's Equity 26,900
Total Liabilities & Shareholder's Equity 42,900

13. George Benaroya
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Finance f or Marketing Decisions
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Step 2.5 Taxes
Tax rate is 20%. Earnings are $26,900
Thus, Taxes are $5,380.
1. Increase taxes by $5,380
2. Decrease cash by $5,380
Taxes adjustment
Earnings Before Tax 26,900
Taxes (20%) 5,380
Net Effect on Cash (5,380)
Income Statement
Reveneue 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation & Amortization 5,000
Interest 500
Total Expenses 57,100
Earnings Before Tax 26,900
Taxes 5,380
Net Earnings 21,520
Balance Sheet
Assets
Cash 29,191
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 37,520
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital -
Retained Earnings 21,520
Shareholder's Equity 21,520
Total Liabilities & Shareholder's Equity 37,520

14. George Benaroya
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Step 3. Equity
What if Jenny would have invested
$10,000 of her own money as Equity?
1. Increase Cash by $10,000
2. Increase Equity by $10,000
3rd Step
Equity 10,000
Net Effect on Cash 10,000
Balance Sheet
Assets
Cash 39,191
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 47,520
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital 10,000
Retained Earnings 21,520
Shareholder's Equity 31,520
Total Liabilities & Shareholder's Equity 47,520

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Income Statement/Profit & Loss
In $
Sales 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation& Amortization 5,000
Interest 500
Total Expenses 57,100
EarningsBefore Tax 26,900
Taxes 5,380
Net Earnings 21,520

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George Benaroya
Balance Sheet
Assets
Cash 39,191
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 47,520
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital 10,000
Retained Earnings 21,520
Shareholder's Equity 31,520
Liabilities & Equity 47,520

17. Displaying the info as a picture from Excel
Assumptions
Income statement
Revenue Growth (% Change)
Cost of Goods Sold (% of Revenue) 30%
SG&A Expenses 43%
Interest (% of Debt Open Bal) 5.0%
Tax Rate (% of Earnings Before Tax) 20.0%
Balance Sheet
Accounts Receivable (Days) 1
Accounts Payable (Days) 7
Capital Expenditures -
Debt Issuance (Repayment) -
Equity Issued (Repaid) 10,000
Income Statement
Sales 120,000
Cost of Goods Sold (COGS) 36,000
Gross Profit 84,000
SG&A 51,600
Salaries and Benefits 30,960
Marketing Expense 5,160
Rent and Overhead 15,480
Depreciation & Amortization 5,000
Interest 500
Total Expenses 57,100
Earnings BeforeTax 26,900
Taxes 5,380
Net Earnings 21,520
Balance Sheet
Assets
Cash 39,191
Accounts Receivable 329
Inventory 3,000
Property & Equipment 5,000
Total Assets 47,520
Liabilities
Accounts Payable 6,000
Debt 10,000
Total Liabilities 16,000
Shareholder's Equity
Equity Capital 10,000
Retained Earnings 21,520
Shareholder's Equity 31,520
Total Liabilities & Shareholder's Equity 47,520

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George Benaroya
Key Financials
P&L Year 1 $ % Sales
Volume (# shoes) 120
Price per pair 1,000
Sales 120,000 100%
Cost of Goods 36,000 30%
SG&A 51,600 43%
of which Marketing 5,160 4%
Other Expenses 10,880 9%
Net Earnings 21,520 18%
BalanceSheet $ Assumptions
Receivables 329 Sales are in cash
Inventory 3,000 Worst case
Payables 6,000
All expenses paid with Visa to get 2%
back
Debt 10,000 Only needed if we buy PPE
Equity 10,000 Cash Reserve
Growth & Cash
Growth/year 20%
Lowest
Cash flow
7,148
First we make money,
and then we spend it

19. Finance f or Marketing Decisions
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George Benaroya
How to make a cash flow for years 2 & 3
When Jenny wakes up on January 1st,
she is bored. She figures she could
make a cash flow estimate for years 2
& 3. These are the steps:
P&L
1. Assign a ratio of growth (for example 5%). Multiply all P&L lines by
1.05
2. Manually adjust the growth rate for some P&L lines as needed. For
example, even if sales grow 5%, your expenses will grow by less
than that (3%). This is the most important part: the assumptionsyou
make. Do research to make sure you get them as accurate as
possible
3. Balance Sheet
Follow the same steps
we used for Year 1 to
make each BS
transaction

20. Finance f or Marketing Decisions
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George Benaroya
Access to these material
Download the slides, see answers to
other questions in the class’ blog
Watch the videos on YouTube
youtube.com/c/GeorgeBenaroya
How to read a P&L How to read a BS
How to use the excel file to make a Cash Flow
How to make a Cash Flow statement

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