Saw an interesting cashflow model
I'm a junior credit analyst at a corporate bank and today I received an interesting cashflow model from sales team that I'd love to share and hear your thoughts.
Base case assumptions
Revenue growth = 0%
GPM = 20%
Inventory Days = 800 days
Stress case assumptions
Revenue growth = -10%
GPM = 15%
Inventory Days = 1000 days
Intuitively, it looks like the assumptions are okay. Ignoring 1st year shock, it turns out the drop in revenue causes drop in COGS, hence inventory decreases by 10% every year. The decrease in inventory pushes up operating cashflow and the company's operating cashflow and net gearing becomes better in stress case than base case. Could someone tell me what goes wrong and how to modify the model.
*AR and AP are small compared to inventory
**Debt level are assumed to stay relatively stable
Will look it when I have time but in the meanwhile BUMP!
What's the calculation for Inventory cells?
(Inventory Days * COGS) / 365
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