Liquidity Analysis
- 03:19
A review of Smithy's liquidy position
Transcript
Right, let's look at the liquidity forecast for Smith Inc. We're gonna summarize liquidity sources and we're gonna summarize liquidity uses. We start by linking in the forecast cash and cash equivalents in year one.
42.2, and then we want to use the funds from operations only if that provides liquidity. This is sources of liquidity, so we're gonna do a max function here.
And we see that because funds from operations is a positive number, it comes in here as a source of liquidity. Then we look at the forecast change in operating working capital and also only if it's a positive.
And it is a positive, so we're gonna link 5.7 in there as well. And then we have hard coded in the total undrawn bank lines available for Smith Inc, so that would be a source of liquidity, of course. And then we summarize all of that for that year, and it's 178.6. Then on the uses side, funds from operations, if that was a negative, it would come in here. So I'm just gonna copy the positive number here in the sources, put that in, and make that a minus, the min function instead, and I'm gonna do the same for the forecast change in operating working capital.
And then a typical use, of course, would be capital expenditure. I'm gonna put a minus sign there.
And then finally, I'm gonna link in the mandatory debt repayments here.
And those mandatory debt repayments are zero in the first forecast here. And now I can summarize my total uses of liquidity as well. I go down and I look at my liquidity ratio, 178.6 worth of sources. Compare that for 49.3 of uses, and I got a really healthy liquidity ratio of 3.6. And then of course, we could just copy these numbers across and see what happens with the liquidity position over the next couple of years.