International Center For Environmental Finance

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International Center For Environmental Finance
Series B Course 1 Measuring Cash Flow
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Measuring Cash Flow

• Cash Flow is a major factor in all loan programs.

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Measuring Cash Flow

• Cash Flow is the amount of funds remaining after
  payment of all operating expenses.
• The amount of Cash Flow determines how much money
  can be used to service (repay) debt.
• Cash Flow is a major factor in determining how
  much money can be borrowed.

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How Much Can be Borrowed?

• Borrowing capacity is a function of three
  numbers
• Cash available for debt service.
• Term of loan.
• Interest rate.

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Borrowing Capacity

• Example 1
• IF
• Cash Available for Debt Service 150
• Term 5 years
• Interest Rate 10
• You can borrow 500

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Borrowing Capacity

• Example 1
• Interest _at_10 50
• Principal Payment 100
• (500/5 years 100) _______
• Annual Debt Service Payment 150

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Borrowing Capacity

• Example 2
• IF
• Cash Available for Debt Service 150
• Term 10 years
• Interest Rate 5
• You can borrow 1000

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Borrowing Capacity

• Example 2
• 1st Year
• Interest 5 50
• Principal Payment 100
• (1000/10 years 100) _______
• Annual Debt Service Payment 150

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Cash Available For Debt Service

• Regular Cash Income
• Regular Cash Expense
• Cash Available for Debt Service

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Regular Cash Income

• Actual Cash Received For Continuing Services.

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Regular Cash Income

• We can summarize the Regular Cash Income concept
  with a simple formula
• Total Cash Income
• Non-recurring Cash Income
• Regular Cash Income

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Examples Of Non-recurring Cash Income

• One time connection fees.
• Grant from a donor.
• Sale of a piece of property or equipment.

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Regular Cash Income

• Occurs regularly.
• There is historical data.
• Can be used to predict future income.

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Regular Cash Income

• Example
• Tariff Income
• Number of Households 30,000
• Average Household
• Water Consumption 10m3
• Tariff 2/m3
• Regular Tariff Income 600,000
• (30,000 x (10x2))

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Regular Cash Income

• Barter Transactions?
• What if a utility accepts 100,000 of fish to
  discharge an 80,000 invoice and gives the fish
  to its employees in lieu of 90,000 of salary?

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Regular Cash Income

• Rules For Barter Transactions
• 80,000 treated as non-cash income (not
  included in regular cash income).
• 90,000 treated as reduction of cash expenses.

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Regular Cash Income

• Credits?
• Only as reductions in expenses and decreases of
  current liabilities.
• Only if they are pursuant to binding, legal
  agreements.

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Regular Cash Expenses

• Cash payments for goods and services to be used
  in the current year.

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Regular Cash Expenses

• We can summarize Regular Cash Expenses with a
  simple formula
• Total Cash Expenses
• Non-recurring Cash Expenses
• Regular Cash Expenses

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Examples Of Non-current Year Expenses

• Purchase of a new machinery with a 20 year
  service life.
• Purchase of Land.

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Examples Of Current Year Expenses

• Labor 50,000
• Supplies 6,000
• Insurance 5,000
• Maintenance 3,000
• Rental cost 11,000
• Utilities 4,000
• Travel 20,000
• Property Tax 30,000
• Total Current Year Expenses 129,000

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Regular Cash Expenses

• Credits?
• Only if they offset current liabilities.
• Only if they are pursuant to binding, legal
  agreements

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Examples Of Credit Payments

• Credit to acquire goods or services.
• Credit to offset current liabilities (utilities,
  rent, etc.).
• Credit for services to a Government to offset
  taxes.

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Regular Cash Expenses

• Regular Cash Expenses do not include Non-Cash
  Expenses.

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Non Cash Expenses

• Depreciation
• Depreciation is the annual notional decline in a
  value of an asset with a multi-year service life.

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Non Cash Expenses

• Depreciation
• 5,000 truck with a 5 year service life means
  annual depreciation of 1,000
• Initial Cost/Service Life Annual Depreciation

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Regular Cash Expenses

• Regular Cash Expenses are Total Cash Expenses
  minus Non-Cash Expanses, or
• Total Expenses
• Non Cash Expenses
• Regular Cash Expenses

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Cash Available For Debt Service (CADS)

• Once we have calculated both Regular Cash Income
  and Regular Cash Expenses we can easily calculate
  cash available for debt service, or
• Regular Cash Income
• Regular Cash Expenses
• Cash Available for Debt Service

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Cash Available For Debt Service

• Cash available for debt service shows the amount
  of money that can be used to pay annual debt
  service on projects