FIN.4:5 - Archetypal Grounding

A one-period constructed operating account reports revenue 200, cash operating expense 120 and depreciation 20: operating profit is 60. Customers actually pay 150, suppliers are paid 120, and capital expenditure is 30. With no tax, debt flow or other working-capital change in this example, operating cash flow for the period is 30 and net cash flow after capital expenditure is zero. The bridge is profit 60 + depreciation 20 − increase in receivables 50 − capital expenditure 30 = 0. The 50 receivable remains a claim; it is not cash already received. If customers pay the remaining 50 next period, place that receipt there once. To assess a further payment, use FIN.2 with the opening usable balance and the dates of receipts and payments.

For a forward use of the same numbers, suppose opening cash is 40, receivables 30 and net equipment 100, with no liabilities or other assets. Sales are 100 units at 2; cash expense comprises variable expense 0.6 per unit and fixed expense 60. The forecast collects three quarters of new sales in this period and none of the opening receivables; it retains the capital expenditure and depreciation above. Closing cash is 40, receivables are 30 + 200 − 150 = 80, and equipment is 100 + 30 − 20 = 110. Net assets of 230 equal opening equity 170 plus forecast profit 60, with no owner flow.

If expected volume falls to 90 units, revenue becomes 180, cash expense 114 and receipts 135 under the same terms. Profit is 46. Cash closes at 40 + 135 − 114 − 30 = 31; receivables close at 75 and equipment at 110. The 216 of net assets equals 170 + 46. This forecast changes the variable expense, retains the fixed commitment and exposes a cash fall of 9. Now collect only half of the new sales. Receipts become 90, receivables 30 + 180 − 90 = 120, and profit remains 46. The cash projection is 40 + 90 − 114 − 30 = −14: the balanced roll-forward exposes an unfunded amount, not an obtained loan. FIN.2 locates the dated need; FIN.10 supplies obtainable financing terms if required, after which their interest, tax and cash effects return to this account. Funding 14 at period end does not necessarily cover earlier payments. Balancing the accounts also does not establish that customers will pay as forecast.

To fund that same shortfall, now stipulate an obtainable loan drawn at the start of the period, with sufficient available limit, no fees and principal remaining outstanding after period end. Interest is 10% of the drawn principal, expensed and paid at period end. Retain no tax and all other forecast amounts. The dated cash plan establishes that this draw also covers every earlier payment; the period-end equation alone cannot establish that condition.

If the draw is d, closing cash is −14 + d − 0.10d. Setting it to zero gives d = 14/0.90 = 15.56 and interest 1.56, rounded. Drawing only 14 would leave 1.40 unfunded. Operating profit stays 46, but profit after interest is 44.44; closing equity is 170 + 44.44 = 214.44. Receivables 120, equipment 110 and zero cash give assets 230, matched by debt 15.56 plus equity 214.44. The direct cash account and the profit-to-cash bridge give the same zero closing balance. Keep the 15.56 principal repayment at its actual later due date in the next cash plan. The calculation uses the stipulated drawable terms; it does not turn an estimated borrowing amount into an available offer.