I'm looking for some opinions on the best way to forecast cash requirement from balance sheet numbers.
I'm being asked the age old question "If we're making profit, why haven't we got any cash" so I'm trying to put together some balance sheet indicators that highlight the cash requirement of the business.
I started with the usual cash cycle calculations - debtor days minus creditor days = number of days that requires funding, but I'm looking for something that would give me a monetary value rather than a number of days.
I've been looking at some things that suggest using the 'days' as a proportion of revenue (for debtors) and as a proportion of CoS (for creditors).
My question is regarding creditor days - why do all of the sources base creditor days on CoS rather than all credit purchases?
...am I mising something here or would a better calculation of creditor days be based on Total Costs (including CoS) less; depreciation, Payroll costs, Interest, ...and any other non-credit items.
Surely everything needs to be paid for while you're waiting for your debtors to come in? ...am I over-thinking this? :-)