Here is a sample Cash Flow Sensitivity Analysis template that can be used to track changes in planned vs. actual Cash Flow of any company or business. This Analysis Template allows you to track percentage of change when and where occur to compute overall effect and hence gives you an excellent situation to predict future. This Cash Flow Sensitivity Analysis Template allows you to predict cash flow projections based upon pessimistic and optimistic scenarios. This Excel Template is very easy to edit and also to customize from situation to situation as per specific requirements.
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Cash flow sensitivity analysis is related to “what if” scenarios of your business. For instance, how 3% to 4% unexpected increase in cost can affect your cash flow? Cash flow sensitivity model will help you to understand any shortfalls of cash and let you to seek any alternate way to meet your commitments.
Guidelines to Model Cash Flow Sensitivity Analysis
Development of cash flow sensitivity analysis is really simple because you have to consider two keys such as revenues and cost drivers. Mike Boehlje (Distinguished Professor, Ph.D., Purdue University) states that the long term capital expenditures matter but these are not critical for this model. It is necessary for you to track periodical or annual issues directly related to the revenue stream prices, market share, quantity sold and prices of raw material.
Cash flow sensitivity analysis can be straightforward with the use of monthly or quarterly income statement. It can make your cash flow sensitivity really easy to map out. You can simply understand it by taking sales example such as, if your base chart of expectations is lower than the price of sales volume then you can easily evaluate your cash position and can find out all those factors that are disturbing your position gin the market. It will help you to understand either you have shortfall or surplus. You can do similar analysis with other things such as if you want to evaluate your cost side then take fuel prices as example. It will help you to understand your position in the market and you can make important decision about additional financing or saving.
Cash conversion cycle is another important issue that should be addressed during cash flow sensitivity analysis. Cash conversion cycle means your liquid assets or how quickly you can convert your inventory into sales and sales into cash. Speed at which you can convert your inventory to sales and then sales to cash affects your cash flow sensitivity. It helps you to understand how quickly you can arrange cash for business operations and debt servicing. Cash flow sensitivity analysis helps you to evaluate your cash positing in the given time and give you a realistic view of time period related to the conversion of cash from non liquid resources.
Cash flow sensitivity analysis helps you to understand your actual position in the market by considering all possible scenarios by providing you historical records and actual past trends that will be really helpful for you in future projections.