How do you measure and report on cash flow risk performance in your supply chain? (2024)

FAQs

How do you measure and report on cash flow risk performance in your supply chain? ›

Measuring and reporting on cash flow risk performance in the supply chain requires an approach that has many aspects and incorporates quantitative metrics, scenario analysis, supplier risk assessment, cash flow reporting, and continuous improvement initiatives.

How Do You Calculate Cash Flow Analysis? A basic way to calculate cash flow is to sum up figures for current assets and subtract from that total current liabilities. Once you have a cash flow figure, you can use it to calculate various ratios (e.g., operating cash flow/net sales) for a more in-depth cash flow analysis.

Businesses should assess supplier risks by using techniques such as supply chain mapping, weighted ranking, Value at Risk (VaR) analysis, and supplier segmentation to understand and quantify potential vulnerabilities.

Cash Flow at Risk (CFaR) is a measure of how changes in market variables can cause future cash flows to fall short of expectations, as well as the extent of those changes by risk factor.

One of the most common measurements is free cash flow (FCF), sometimes broken down into free cash flow to the firm (FCFf) and free cash flow to equity (FCFe). Generally speaking, FCF is the flow of money through the business, minus capital expenditures (equipment, mortgages, etc.).

The most common and useful metrics include the cash flow statement, which shows how much cash is generated and used during a specific period, and how it affects the cash balance. It consists of operating activities, investing activities, and financing activities.

The four main supply chain risks are economic, environmental, political, and ethical.

The five measures include alpha, beta, R-squared, standard deviation, and the Sharpe ratio. Risk measures can be used individually or together to perform a risk assessment.

Risk assessment is a critical component of effective supply chain management. By assessing risks, companies can identify potential threats to their supply chains and take steps to mitigate or manage them to prevent disruptions that could lead to delays, increased costs, or lost revenue.

What is the cash flow risk? ›

Cash flow risk (occasionally referred to as margin risk) refers to volatility in an organization's revenue and expense line items if left unhedged.

Cash flow is a measure of how much cash a business brought in or spent in total over a period of time. Cash flow is typically broken down into cash flow from operating activities, investing activities, and financing activities on the statement of cash flows, a common financial statement.

The CFS measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. As one of the three main financial statements, the CFS complements the balance sheet and the income statement.

A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period.

What Are Cash Flow Metrics? A metric is any quantifiable measure of a business function. Cash flow metrics are financial indicators that show how effectively a company is performing. These measures can also help you make decisions and assess the quality of economic policies.

Let's say a company called Red Bikes has just opened and earned a net income of $75,000 to start and generated additional cash inflows of $95,000. Cash outflows (expenses like rent and payroll) totaled $25,925. This leaves an ending cash balance of $144,075.

for calculating cash-to-cash requires adding days of inventory plus days of accounts receivable and subtracting days of accounts payable. Therefore, C2C bridges material activities with suppliers, production operations, distribution functions, and outbound sales activities.

Cash flow is an indication of financial health if there is more money coming in than going out. It is important to understand cash flow metrics and key performance indicators (KPIs) so that you can ensure you have enough funds for your business to grow and pay your bills.

A cash flow ratio is a measure of the number of times a company can pay off current debts with cash generated within the same period. A high number, greater than one, indicates that a company has generated more cash in a period than what is needed to pay off its current liabilities.

Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure. Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.