We have spent a good deal of time getting away from the distortions of accrual accounting to arrive at an all cash number. It is now time to reconcile our net cash flow to EBITDA. EBITDA, of course, is based on accrual accounting so it does seem like we're kind of going backwards in time here, but we do this for a few reasons. First of all, we need to check our calculations to see that are many, many adjustments to unwind the accruals foot with the original numbers. We can easily calculate EBITDA from our management projections. So we will use this as our starting point. If we look on the weekly income statement, we will see that we have a historic EBITDA calculation and that calculation actually is carried through into the forecast as well. This is row 25 and basically, although we didn't do this, most people taking this course obviously know how to calculate EBITDA.

It's very simply, the earnings net of the depreciation amortization. And in this case, I've also backed out the legal and advisory fees. And that's primarily because it's not an operating expense. It's kind of a cost that's being incurred sort of in a heightened moment of duress and we don't really want to penalize the company from an operating perspective. It most likely would not be included if we were doing a debt capacity analysis. It probably would not be included if we were doing a levered buyout analysis as well. So we're not gonna include it here. So we have an EBITDA starting point. EBITDA in the world of finances still much more broadly used than almost all cash flow metrics. Even though analysis is based in cash flows, this includes credit covenants. So we wanna make sure that our numbers are accurate in reconciling the cashflow statement in EBITDA. This process will be very similar to building a cashflow statement in a traditional model. However, we are looking in this case just for operating cashflow, not net cashflow, we're still working without interest expense and we're still ignoring taxes because that is the hallmark of EBITDA.

Although, we certainly could include those in the analysis if we were looking, you know, for a different kind of ratio or specific covenant. On the EBITDA reconciliation tab, we will be starting with the EBITDA from that weekly income statement, which is from row 25. And again, I could have just copied this over from the previous year, but I wanted to show you again exactly where I got it from. So this is weekly income statement, row 25. To get from EBITDA to operating cashflow, we're gonna kind of go backwards here. We're gonna take EBITDA and then we're going to unwind the accruals from our model. And that should bring us to a cashflow number that matches the cashflow number that we created on the 13-Week Cash Flow Statement. So let's see if we can do that. The change in accounts receivable will go to the weekly roll forward. And with accounts receivable, this is an asset balance. So I like to think of asset balances as last year or last period minus this period. So I will do week 13 minus week one. We'll do the same thing now for inventory, also an asset balance, week 13 minus week one, accounts payable is now a liability balance. So I think of liability balances as being this year minus last year or this period minus last period. Same thing for salaries and wages payable, another liability, and accrued liabilities as well. And again, if a liability is going up it should mean that cash is coming in. And in these three cases, the liability has been increasing. So we are seeing positive cash flow. And in the case of inventory, the inventory was going up. When asset goes up, that means cash decreases. So I know that I'm doing this correctly. The last thing I need to do here is to take the sum of all of these cash flows, including the EBITDA. EBITDA being the income statement earnings that is the start of the process and that's going to be the sum of these items plus or inclusive of the earnings. And that should be, again, the same thing that's there. So here I'm showing negative cashflow of 6,427.8. Again, we're looking for operating cashflow here. Operating cashflow, depending on how you define it, can or cannot include CapEx. We're including it here because CapEx spending is obviously crucial to the operations.

So we're going to include the CapEx here and I'm going to get that by going to my weekly roll forward for the PP and E and that's going to be here.

And column Q, I need to flip this to be negative because CapEx again is an increase to the base analysis. However, it is a decrease to cashflow. So now I simply need to add the CapEx cashflow to my cashflow from operations to get an operating cash flow number. And that brings me to 7,589. Now, if this matches the 13-Week Cash Flow number then I know that I have done everything correctly and that the model is at least for the most part working. We would need to, you know, do a lot more stress testing, probably to have 100% guarantee. But this is certainly a check to make sure that all the formulas are at least doing what we expect them to do. So the check that I'm going to use here is simply to compare this number in Q16, my operating cashflow to my operating flow in the 13 week. And if I get a zero, I'm in business and I do. So now I can copy this across. And typically when our model works in one year, it should work in subsequent years. That's the the benefit of waiting to the end to copy and it looks like it does. So we have effectively built a 13-Week Cash Flow Model. And now comes the fun part, which is really trying to figure out how to help this company which is clearly facing an oncoming liquidity crisis.