Liquidity Workout Two Sources and Uses. Calculate the S&P liquidity ratio for years one and two for the following business. Assume figures are in millions. So we have some items here that will either provide or take up liquidity and we're gonna calculate our sources and uses. This is again, according to the S&P methodology. The first source of liquidity is the FFO. Now, FFO is a source of liquidity if it's positive. If it's negative, of course, it is a use of liquidity. It looks clearly positive here but just to be safe, we're gonna put a max function in in case we have the ability at some point in our model to change the assumptions and it flips to negative. We'll only have FFO as a source of liquidity if it's positive. So beginning in year one, I'm going to do equals max and I'm gonna go up here and choose my FFO and I'll copy that over. The next source of liquidity would be working capital if it's decreasing. So a decrease in working capital will be a source of liquidity. In this case, it increases from in year one but it decreases in year two. So again, I'm gonna have to put the proper formula in here so that I get the right value in my liquidity section. So, I'll take the max of last year, minus this year or zero.

So in this case, working capital went up from last year to this year, so that would've been a decrease in liquidity. So it's returning a zero and that's what I want. The following year we should have the reverse of that, which we do. Capex is never a source of liquidity. Asset sales would be but we don't have any. Debt maturing in a year. Debt maturing is never a source of liquidity. And undrawn bank lines, however, are so we can have undrawn bank lines and the easiest way to do this is just to link to that label and that's gonna be equal to the 1,000. And then of course, my cash balance as well is a source of liquidity and I need the actual amount of cash not the change in cash. So, my total sources of liquidity are set. Now I need to find my uses of liquidity. Again, just to be thorough, we're gonna go ahead and include the FFO here and in this case what we'll do is we'll do a min formula and we'll take the min of this or zero and that's gonna give me a zero. Now, like a good modeler, I'm always gonna check to make sure my formulas are working. If I were to make this number negative, would that in fact give me the right number? It looks like what I need to do here is actually flip it to show up as a positive. So my uses of liquidity, the way the formula is gonna work, I need positives in both the numerator and the denominator. So even though technically a use of liquidity in cash flow terminology should show up as a negative. I want them all to show up as positive so I can get a positive ratio. So, I'm gonna go ahead and copy that over. Flip this back. Now I get zero. Change in OWC and it's the same thing. I'm gonna do negative min of last year minus this year, comma zero and I'm gonna copy that across. And then for capex, I'm gonna link directly to my capex.

And again, positive. I have a total debt amount here and then I also have debt maturing in the year and what I need here is the debt maturing in the year. So I'm going to link to that.

And that gives me my total uses of liquidity. So, now I can go ahead and calculate my ratio, which is sources over uses and we have 1.1 to 1.5.

1.1 is right on the cusp of sort of being not enough. 1.5 is in the adequate range. So this is something that we would wanna look out for if we were about to make a loan to this company.