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.

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.

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. Value At Risk (VaR): Similar to CFAR.

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.

A statement of cash flow is divided in operating, investing, and financing sections. You can evaluate each section individually to better understand recurring and non-recurring activity. You can also evaluate the statement using cash flow per share, free cash flow, or cash flow to debt.

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.

Free cash flow (FCF) is one of the most common ways of measuring cash flow. This metric tracks the amount of cash you have left over after capital expenditure items like equipment and mortgage payments.

High Expenditure Compared to Sales. Expenses, especially unplanned ones, are variables that cause cash flow risk. An example is when machines or equipment break down and require immediate fixing lest operations are halted. The cost of such repair is usually very high.

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.

Drawbacks. The limitations of cash flow forecasts include being unable to account for changing costs, and the accuracy of when money comes into the business. Miscalculations will affect the business which could result in debt.

What are the five 5 measures of risk? ›

Types of Risk Measures. There are five principal risk measures, and each measure provides a unique way to assess the risk present in investments that are under consideration. The five measures include alpha, beta, R-squared, standard deviation, and the Sharpe ratio.

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.

Risk—or the probability of a loss—can be measured using statistical methods that are historical predictors of investment risk and volatility. Commonly used risk management techniques include standard deviation, Sharpe ratio, and beta.

A cash flow performance measure calculated as cash provided by operating activities divided by capital expenditures. A cash flow performance measure calculated as cash provided by operating activities minus capital expenditures.

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 example, seeing a metric of net income is helpful, but it becomes meaningful when other information, such as performance over time or how assets relate to liabilities, etc., are factored in. KPIs for cash flow are financial metrics that guide management and stakeholder decision-making.

Cash flow statement

Given the importance of good cash flow management, it might well help to produce a statement that demonstrates this. A cash flow statement looks a lot like a profit and loss statement and the balance sheet. It should aim to look at how cash moves in and out of the business.

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.

The cash flow coverage ratio measures how much cash you generate annually to pay off your total outstanding debt. A ratio of greater than one indicates that you're not at risk of default. Because this ratio shows sufficient cash flow to pay off debt plus interest, it should be as high as possible.