Module 117 min2033 wordsFree — no account
Self-financing capacity and operating cash flow
The module’s worked examples, then cases to attempt before revealing their solution · 2 sections · 376 words · 3 min
Worked example
Two businesses, the same capacity, two situations
Two companies generate 30 000 € of self-financing capacity. The first sees its working capital requirement rise by 4 000 €: operating cash flow reaches 26 000 €, comfortably covering its 18 000 € of loan instalments. The second, growing 30 %, sees its requirement rise by 28 000 €: cash flow falls to 2 000 €, far below the same 18 000 € of instalments. It will have to borrow in order to repay its borrowings, even though its income statement looks better than the first company's.
Practical case
Reconcile both methods and measure the real flow
Nadia's workshop shows: gross operating surplus 36 000 €, depreciation 24 000 €, financial charges 6 000 €, operating profit 12 000 €, net result 6 000 €, no disposal gains, no tax owing to a loss carried forward. Its working capital requirement moved from 51 000 € to 62 000 €. Compute self-financing capacity by both methods, check that they converge, then derive operating cash flow. Its loan instalments come to 18 000 €: are they covered?
Hint: The additive method starts from the net result. The subtractive method starts from the gross operating surplus. The change in requirement is subtracted afterwards, never before.
Show the solution
Subtractive method: 36 000 − 6 000 of financial charges − 0 of tax = 30 000 €. Additive method: 6 000 of net result + 24 000 of depreciation = 30 000 €. The two converge, so the calculation is reliable. The change in working capital requirement is 62 000 − 51 000 = 11 000 €, tied up in the cycle. Operating cash flow therefore stands at 30 000 − 11 000 = 19 000 €. Against 18 000 € of instalments, cover is achieved but only just: 1 000 € remain for everything else, that is, for renewing the tools and for any surprise. On self-financing capacity alone the business would have appeared to have 12 000 € of headroom; the full calculation brings it down to 1 000 €.
Answer: 30 000 € by both methods, operating cash flow of 19 000 € after an 11 000 € rise in the requirement; the 18 000 € of instalments are covered, but only 1 000 € remains.
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