Credit Analysis – Cash Flow Analysis

This course looks at the statement of cash flows, and describes the cash conversion cycle and its impact on working capital ratios. Working capital days measures are also covered, including the use of such measures to identify the drivers of cash flow from operations. Other measures, such as EBITDA, are also explained, along with balance sheet structural elements – such as overleverage – that can have adverse cash flow implications. Finally, the topic of cash flow forecasting and associated stress testing are also introduced.


A good understanding of these measures, and accounting policies and practices to look out for, will help credit analysts and others to understand the key drivers of a company’s cash flow.


    On completion of this course, you will be able to:

    Construct a typical statement of cash flows

    Recognize the importance of the cash conversion cycle

    Calculate the impact of changes to key parameters on a company’s cash flow

    Define EBITDA and recognize its limitations as a measure of cash flow

    Identify the structural features of balance sheets that can have adverse cash flow implications

    Recognize the value of cash flow forecasts and the need to stress test such forecasts


    Topic 1: Statement of Cash Flows

    A Perspective on Cash Flow

    What is a Statement of Cash Flows?

    Noncash Adjustments

    Statement of Cash Flows Structure

    o Operating Activities

    o Investing Activities

    o Financing Activities

    Constructing a Statement of Cash Flows

    o Direct Method

    o Indirect Method

    Topic 2: Cash Conversion Cycle

    Cash Conversion Cycle

    o Example

    o Why Understanding the Cash Conversion Cycle is Important

    o Impact of Changing Key Parameters

    • Changing Cash Purchases

    • Changing Cash Sales

    • Increasing Sales

    • Extending the Receivables Period

    • Combined Impact

    • Key Takeaways

    Cash Conversion Cycle & Working Capital Ratios

    o Current & Quick Ratios

    o Impact of Changing Key Parameters

    o Key Takeaways

    Working Capital Days

    o Accounts Receivable Days

    o Inventory Days

    o Accounts Payable Days

    o Interpretation

    o Example

    Topic 3: EBITDA

    What is EBITDA?

    Ratios Using EBITDA

    o Debt/EBITDA

    o Interest Coverage

    o EBITDA Margin

    o Business Valuation

    Limitations of EBITDA

    Topic 4: Other Cash Flow Considerations

    Balance Sheet Structural Issues with Cash Flow Implications

    o Leverage

    o Funding Mismatches

    o Currency Mismatches

    o Warning Signs

    Cash Flow Forecasts

    o Assumptions

    o Stress Testing



    75 Minutes

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