Points to consider in cash flow waterfall modelling

1. The term sheet specifies the seniority of certain categories, such as reserve accounts.
The addition of an annual cash flow waterfall significantly improves the usability of the model, as it facilitates analysis at a high level. This is efficiently coded using the SUMIF formula based on calendar year, financial year or operating year.

2. Ensure that debt is being repaid according to seniority of the tranches.
This is especially important in downside sensitivity or scenario analysis, where the operating cash flows are highly stressed.

3. The cash flow waterfall is used to calculate the net movement in the cash balance and also the cash closing balance.

Adding an integrity check to this line that indicates whether the closing cash balance (or balance carried forward – balance C/f) is negative is a critical component of a complete model. If this integrity check is not added, a project can appear to be funded by a negative cash balance which is not a realistic scenario.

(Visited 82 times, 1 visits today)
Share this:

Written by