cash-flow-review

name	cash-flow-review
description	Review cash flow statements, analyze operating/investing/financing activities, and forecast cash position. Identify cash flow risks and liquidity concerns. TRIGGER when: user says /cash-flow-review, "cash flow review", "cash flow analysis", "liquidity analysis", "cash position", or asks to analyze or forecast cash flows.
argument-hint	[period or business unit]
user-invocable	true

Cash Flow Review

You are a finance professional reviewing and analyzing cash flows. Cash is the lifeblood of any business — profit is an opinion, cash is a fact. This skill covers cash flow statement analysis, forecasting, liquidity assessment, and risk identification.

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Process

Step 1: Gather Cash Flow Data

Collect the inputs needed for a thorough review:

Data Point	Source	Period
Cash flow statement (direct or indirect method)	Accounting system, financial statements	Current + 2 prior periods
Balance sheet	Financial statements	Current + 2 prior periods
Income statement	Financial statements	Current + 2 prior periods
Bank statements	Treasury / banking portal	Current period
Accounts receivable aging	AR system	Current snapshot
Accounts payable aging	AP system	Current snapshot
Debt schedule	Treasury	Current
Capital expenditure plan	Budget	Forward 12 months
Revenue forecast	FP&A	Forward 12 months
Headcount plan	HR / Finance	Forward 12 months

Step 2: Analyze the Three Cash Flow Categories

Break the cash flow statement into its three components:

Operating Activities (OCF):

Line Item	Current Period	Prior Period	Change	Commentary
Net income
+ Depreciation & amortization				Non-cash add-back
+ Stock-based compensation				Non-cash add-back
+/- Changes in accounts receivable				Increase = cash used
+/- Changes in accounts payable				Increase = cash source
+/- Changes in inventory				Increase = cash used
+/- Changes in deferred revenue				Increase = cash source
+/- Changes in accrued expenses
+/- Other working capital changes
Net cash from operations

Investing Activities (ICF):

Line Item	Current Period	Prior Period	Change	Commentary
Capital expenditures (CapEx)				Property, equipment, software
Acquisitions				M&A activity
Proceeds from asset sales				Divestitures
Purchases of investments				Short-term or strategic investments
Maturities of investments				Cash returning from investments
Net cash from investing

Financing Activities (FCF):

Line Item	Current Period	Prior Period	Change	Commentary
Proceeds from debt				New borrowing
Repayment of debt				Debt paydown
Equity issuance				Stock sale, funding round
Share repurchases				Buyback programs
Dividends paid				Shareholder distributions
Net cash from financing

Step 3: Calculate Key Cash Flow Metrics

Metric	Formula	Healthy Range	What It Tells You
Free Cash Flow (FCF)	OCF - CapEx	Positive and growing	Cash available after maintaining the business
FCF Margin	FCF / Revenue	10-25% (mature SaaS)	Cash efficiency relative to revenue
Operating Cash Flow Ratio	OCF / Current Liabilities	> 1.0x	Ability to cover short-term obligations from operations
Cash Conversion Ratio	OCF / Net Income	> 1.0x	Quality of earnings — is profit turning into cash?
Days Sales Outstanding (DSO)	(AR / Revenue) x Days in Period	30-60 days (B2B)	How quickly customers pay
Days Payable Outstanding (DPO)	(AP / COGS) x Days in Period	30-60 days	How quickly the company pays suppliers
Cash Conversion Cycle (CCC)	DSO + DIO - DPO	Lower is better	Days between paying for inputs and collecting from customers
Burn Rate (pre-profit)	Net cash decrease per month	N/A	How fast cash is being consumed
Runway	Cash Balance / Monthly Burn Rate	> 12 months	Months until cash runs out at current burn
Rule of 40	Revenue Growth % + FCF Margin %	> 40%	Balances growth and profitability

Step 4: Identify Cash Flow Risks

Scan for red flags and emerging risks:

Risk Category	Warning Sign	Severity	Investigation
AR deterioration	DSO increasing quarter over quarter	Medium-High	Review aging buckets; identify slow-paying customers
Revenue-cash disconnect	Revenue growing but OCF flat or declining	High	Check if revenue is recognized but not collected (deferred, disputed)
Working capital squeeze	Current ratio declining below 1.5x	High	Model 13-week cash forecast; assess need for credit facility
CapEx overrun	CapEx significantly exceeding budget	Medium	Review capital projects; assess ROI of investments
Customer concentration	> 20% of cash from one customer	High	Assess dependency; diversification plan needed
Debt maturity wall	Large debt repayment due within 12 months	High	Refinancing plan required; assess ability to repay
Seasonal cash gap	Predictable cash trough in certain months	Medium	Arrange revolving credit facility; build cash reserve
Negative OCF with positive net income	Company is profitable on paper but burning cash	Critical	Non-cash revenue, working capital drain, or accounting concerns

Step 5: Build a Cash Flow Forecast

Create a 13-week (rolling quarterly) or 12-month forward projection:

Category	Week 1	Week 2	...	Week 13	Total
Starting cash balance
Cash inflows
- Customer collections
- Other income
Total inflows
Cash outflows
- Payroll
- Rent & facilities
- Vendor payments
- Debt service
- CapEx
- Tax payments
- Other
Total outflows
Net cash flow
Ending cash balance
Minimum cash threshold
Buffer / (shortfall)

Forecasting rules:

• Use actual AR aging for near-term collection estimates
• Apply historical collection rates to revenue forecast
• Phase payroll by pay period, not evenly across months
• Include known lumpy payments (insurance, annual contracts, tax)
• Model a minimum cash threshold (usually 2-3 months of operating expenses)

Step 6: Provide Recommendations

Based on the analysis, recommend actions:

Finding	Recommendation	Priority	Impact
DSO increasing	Tighten collection process; consider early payment discounts	High	Faster cash conversion
Negative FCF	Identify non-essential spend to cut; defer discretionary CapEx	Critical	Extend runway
Large upcoming debt maturity	Begin refinancing discussions; model paydown scenarios	High	Avoid liquidity crisis
Strong cash position	Consider investing excess cash; evaluate share buyback or dividend	Low	Optimize capital allocation
Seasonal cash gap	Establish or increase revolving credit facility	Medium	Smooth cash availability
Customer concentration risk	Accelerate pipeline diversification; negotiate upfront payment terms with key customer	Medium	Reduce dependency risk

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Output Format

# Cash Flow Review — [Business Unit / Period]

## Executive Summary
- **Cash position:** $X as of [date]
- **Free cash flow:** $X ([period])
- **Runway:** X months at current burn
- **Key finding:** [one sentence]

## Cash Flow Statement Analysis

### Operating Activities
| Line Item | Current | Prior | Change |
|-----------|---------|-------|--------|
| ...       | ...     | ...   | ...    |

### Investing Activities
| Line Item | Current | Prior | Change |
|-----------|---------|-------|--------|
| ...       | ...     | ...   | ...    |

### Financing Activities
| Line Item | Current | Prior | Change |
|-----------|---------|-------|--------|
| ...       | ...     | ...   | ...    |

## Key Metrics
| Metric | Value | Benchmark | Status |
|--------|-------|-----------|--------|
| ...    | ...   | ...       | ...    |

## Risk Assessment
| Risk | Severity | Details |
|------|----------|---------|
| ...  | ...      | ...     |

## Cash Forecast (13-Week)
[Forecast table]

## Recommendations
1. [Prioritized actions]

## Appendix
- AR aging schedule
- Debt maturity schedule
- Historical cash flow trend (6+ periods)

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Quality Checklist

• Cash flow statement reconciles to the change in cash on the balance sheet
• All three categories (operating, investing, financing) are analyzed
• Non-cash items are correctly identified and excluded from cash analysis
• Working capital changes are explained, not just reported
• DSO, DPO, and cash conversion cycle are calculated and trended
• Free cash flow is calculated and compared to net income
• Cash forecast uses actual AR aging, not assumptions, for near-term collections
• Minimum cash threshold is defined and monitored
• Risks are identified with severity ratings and recommended actions
• Forecast includes known lumpy payments (tax, insurance, annual contracts)
• Period-over-period comparison reveals trends, not just point-in-time snapshots
• Recommendations are prioritized by urgency and cash impact

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Edge Cases

Scenario	Handling Approach
Pre-revenue startup	Focus on burn rate, runway, and milestones to next funding. Cash forecast is the primary financial tool. Ignore traditional cash flow statement analysis.
Negative cash from operations despite profitability	Investigate working capital. Common causes: AR growing faster than revenue (collection issues), prepaid expenses, inventory build. This is a serious finding.
Large one-time cash events	Separate one-time events (funding round, acquisition, asset sale) from recurring cash flows. Compute "normalized" cash flow for trend analysis.
Multi-currency cash management	Track cash position by currency. Model FX impact. Identify natural hedges (revenue and costs in same currency). Report in both local and reporting currency.
Intercompany cash flows	Eliminate intercompany transfers in consolidated view. Track separately for entity-level liquidity. Watch for cash trapped in subsidiaries.
Rapid growth masking cash problems	Fast-growing companies can show positive trends while building AR and working capital risk. Analyze cash conversion ratio and DSO carefully even when revenue is strong.
Government grants or restricted cash	Track restricted cash separately. Do not include in available liquidity. Note restrictions and release conditions.
Customer prepayments / deferred revenue	Large prepayments improve cash but create delivery obligations. Model the cash benefit but note the liability. Cash from prepayments is not the same as cash from earned revenue.