Changes In Op. Profitability & Efficiency: Steps

Question 1

Step 1
Amount
Source of cash

Answer 1

Gross %

Amount: change revenue $

Source of cash:

Change in Gross % x forecast revenue

+ cash
If gross % increases
- cash
If gross % decreases

Question 2

Step 2
Amount
Source of cash

Answer 2

Sales Goods Administration

Amount: change revenue &

Source of cash:

Change (SGA % of revenue) x forecast sales

• cash
  If the change is positive
  + cash
  If the change is negative

Question 3

Step 3
Amount
Source of cash

Answer 3

AR

Amount: change sales/day $

Source of cash:

Change AR days x forecast sales per day

• cash
  If change is positive
  + cash
  If change is negative (converting credit to cash quicker)

Question 4

Step 4
Amount
Source of cash

Answer 4

Inventory

Amount: change COGS/day $

Change Inventory days x forecast COGS per day

• cash
  If change is positive (holding onto inventory longer; cash is tied up)
  + cash
  If change is negative

Question 5

Step 5
Amount
Source of cash

Answer 5

PpEx and Other Current Operating Assets

Amount: change revenue $

Source of cash:

Change (PpEx and OCOA % of revenue) x forecast sales

• cash
  If change is positive
  + cash
  If change is negative

Question 6

Step 6
Amount
Source of cash

Answer 6

AP

Amount: change COGS/day $

Source of cash:

Change AP days x forecast COGS per day

• cash
  If change is negative
  + cash
  If change is positive (want more days, use other people’s money longer)

Question 7

Step 7
Amount
Source of cash

Answer 7

Accrued Expenses

Amount: change revenue $

Source of cash:

Change (AccEx % of revenue) x forecast sales

• cash
  If change is negative
  + cash
  If change is positive (treat this like AP; a larger portion = larger portion of not using own cash)

Question 8

Forecasting Flow

Answer 8

Sales
COGS

GP
Gross Margin %

SGA
SGA %

Sales / day
COGS / day

AR
AR days

Inventory
Inventory days

PpEx and OCA
PpEx and OCA %

AP
AP days

AccEx
AccEx %

Question 9

Change between forecast and actual

Answer 9

Forecast - Actual

Question 10

Ex-ante

Answer 10

Project for one year based on financial statements

Question 11

Ex-post

Answer 11

Analyze two years worth of financial statements to gauge impacts to OCF

Question 12

Adjusting dual impacts on Inventory

Answer 12

(Change in Profit COGS per day - Sales growth COGS per day) x (prior year inventory days)

Question 13

Adjust for dual impacts on AP

Answer 13

(Change in Profit COGS per day - Sales growth COGS per day) x (prior year AP days)