Quick and Dirty Cash Flow Model

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“Quick and Dirty”
Cash Flow Model

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“Quick and Dirty” Cash Flow Model
• In its simplest form, Free Cash Flow is calculated from
Sales and 5 value drivers
– Sales (S)
• The level of sales
– Sales Growth (G)
• Expected growth in sales
– Incremental Fixed Capital Investments (F)
• Capital expenditure in excess of depreciation expense that is
required to grow sales by one currency unit
– Incremental Working Capital Investments (W)
• Net investment in working capital to grow sales
– Operating Profit Margin (P)
– Cash Taxes (T)

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Sales (S) 10 000 €
Sales Growth (G) 20 % 2 000 €
Operating profit margin (P) 10 % + 1 200 €
Taxes (T) 25 % - 300 €
Incremental Fixed Capital Investments (F) 1)
5 % - 100 €
Incremental Working Capital Investments (W) 2)
10 % - 200 €
FREE CASH FLOW 600 €
Free Cash Flow = (S + (S x G)) x P) - (T x G) - (F x G) - (W x G)
Example - Company XYZ
1) Incr. Fixed Capital Inv. Rate (%) = (Capital Expenditures - Depr. Expense) / Incremental Sales
2) Incr. Working Capital Investment Rate (%) = Incr. Working Capital Investment / Incremental Sales

4. @TimoNurminiemi
http://www.linkedin.com/in/timonurminiemi
ArgonPro
consulting
training
@TimoNurminiemi
http://www.linkedin.com/in/timonurminiemi
@TimoNurminiemi
http://www.linkedin.com/in/timonurminiemi
e-mail: timo.nurminiemi@kolumbus.fi