Cash Flow Statement, to forecast our cash flow statement, we need to work out whether items will have caused cash to go up or down. Let's start with net income; net income causes your attained earnings to go up. Is that going to make cash go up or down? Well, hopefully those profits will convert into cash, so that's cash going up. The next item is D&A; that's depreciation and amortization. D&A is a cost in the income statement and it's already included in net income in the line above and, therefore, our net income is lower because of that D&A cost. However, we need to remember that D&A is a non-cash cost. If it's non-cash, then we need to add this cost back as we're only interested in cash flows here. So D&A is a positive figure when we are calculating our cash flows. The next item is change in operating working capital. Now, we are looking for any other cash flows from the business operations. A good example of this is the inventory that's included in operating working capital. If my inventory increases, then my net operating working capital also increases. If inventory has gone up, then cash must have gone down because I've used cash to buy that inventory. So an increase in operating working capital means that cash will go down. The next item is capex or capital expenditure; that makes your property plan and equipment go up, but you are going to need to use cash for that capex, so cash goes down. So that is always a negative number in your cash flow statement. The next item is dividends paid; these will make your attained earnings go down, but dividends also use cash so they'll make your cash balance go down. So again, dividends are always a negative number in your cash flow statement. The next item is debt issuance or repayment. In this situation, the debt balance has gone down in year one. So that means some of the debt has been repaid and this must have used cash. So we'll make your cash go down. We're nearly at the bottom of the cash flow statement and we can now sum are operating, investing and financing items together to give the net cash flow. The final two lines of the cash flow statement need a bit more explanation. Here we have our beginning cash net of the revolver. What we are doing here is treating the revolver as a negative cash balance or like an overdraft. So if the previous year's balance sheet showed cash and cash equivalence of 2243.6 and a revolver of 100, this would give us the beginning net number of 2143.6. Why are we doing this? Well, it means that if, for example, the company was generating positive cash flow in the year but the beginning cash balance net of the revolver was negative, then any cash flow generated in the year is assumed to pay down some of the revolver. So when we add the net cash flow to the beginning cash balance net of the revolver, we end up with the ending cash balance net of the revolver. One thing to note here is that we've specifically excluded changes in the revolver from our financing cash flows above. We can't include them in our cash flows as we'd be double counting them, since we're including the revolver at the bottom of the cash flow statement instead. One final thing to remember when we're building our cash flow statement is that our ending cash and cash equivalents net of our revolver must be calculated by taking cash and cash equivalents less the revolver from the balance sheet in our model. This then becomes the beginning balance in our first forecast year.