An undeniable strength for any organization involves the ability to forecast cash flow. It provides for capital management, going concern evaluation, and long-term operational agility.
The client, an international medical device manufacturer, recently acquired a UK subsidiary to expand global operations. As a function of its annual audit due diligence, the client must prove that its acquisition remains a going concern. Among the various assessments used to justify an unqualified audit opinion of sustainable going concern, stress testing future cash flows remains a valuable and effective method.
Cash flow modeling can be attained by coupling changes in earnings before interest, taxes, depreciation, and amortization (EBITDA) and net working capital (NWC). Our consultant began by achieving an understanding of the client’s historical cash flow activities and specific macro-economic behaviors. During the initial phase of discovery, it was also appropriate to perform a strengths, weaknesses, opportunities, and threats (SWOT) analysis to support observations of financial performance and position.
After establishing a baseline of the cash generating unit’s (CGU) behavioral norms and economic landscape, development of seasonality-adjusted projections followed. To maximize resource flexibility, DLC created dynamic forecasts with scalable algorithms and smart key performance indicator (KPI) manipulation.
DLC delivered a robust and user-friendly resource to visualize multi-scenario impacts on future cash flow. The client was able to anticipate and mitigate challenging situations to guide a powerful and compelling argument of its subsidiary’s unqualified going concern.