Cash Flow Cycles book

Cash Flow 3.0 – Advances in Cash Flow Lending
based on Sustainable Cycles 

This is not another book attempting to make sense of the FASB95 (IAS7) “cash flow statement.” To the contrary, Cash Flow 3.0 challenges today’s methodologies, boldly introducing an alternative that frames cash flow in terms of cash flow cycles. The logic of cycles is so intuitive, so cogent, that it is quickly grasped and quickly applied.  But more significantly, it has led to startling discoveries.

The most startling is that there is a flaw in today’s financial statements that makes healthy companies appear weak, making it difficult for them to get credit. The flaw and the solution were revealed in the Journal of Accountancy (April 2012): “The missing piece in liquidity calculations, why calculating the ‘current portion of fixed assets’ would provide a more accurate picture of financial health.”)

The “current portion of fixed assets” (CPFA) is only one of several revelations that comes from viewing cash flow in terms of cycles. Other discoveries followed, including cross-cycle repayment, which explains how AT&T remains current on debt despite a multi-billion dollar negative working capital; and cross-cycle financing which answers questions like "Can a term loan be made to finance a permanent increase in working capital?" More discoveries added more insights, and more chapters, growing into a book—this book!

Cash Flow 3.0 is a bold paradigm shift, the kind that comes rarely in established fields. It will stimulate debate because it challenges the status quo. Nevertheless, the first revelation--the discovery of the missing piece, CPFA--stood up to the scrutiny of the conservative board of editors of the Journal of Accountancy, and The RMA Journal has published several more articles on revelations extracted from the book, all suggests that "cycle theory" in its entirety will also hold up under scrutiny. (All articles are available on the Home page!)

CF3.0 is available click here: Amazon


Chapter 1:  Cash Flow 1.0 – The Best Practices Paradigm    

  • Introducing cash flow cycles    
  • Introducing the Cash Cycle Balance Sheet
  • The importance of equity in cash flow:  the debt burden    

Chapter 2:  Cash Flow 3.0 – Sharpening the Measures of Debt Repayment

  • Introducing CPFA – the current portion of fixed assets
  • Correcting the measures of liquidity
  • The intersection of the short term and long term cycles
  • Introducing CPFC – the current portion of fixed capital
  • Liquidity measures – at the intersection
  • DSCR at the intersection - introducing PDSCR
  • The importance of net profit

Chapter 3:  Cross-Cycle Repayment

  • Cross-cycle repayment from the income statement cycle
  • Cross-cycle repayment between investment cycles
  • Cross-cycle cash flows – which is the secondary source?
  • Secondary cash flow – the case of AT&T
  • Introducing the Comprehensive Coverage Ratio
  • CF3.0 – A new sequence of analyzing cash flow

Chapter 4:  Cross-Cycle Financing 

  • Capital Shift and the financing decision
  • Testing the Paradigm: Term loans for “working capital”
  • Term loans vs. revolving credit lines - fixed asset support with two cash flows
  • Credit lines secured by third party collateral
  • Notes payable to owners – accounting convention vs. cash cycle theory
Chapter 5:  How the Income Statement Cycle Overlaps the Balance Sheet Cycles
  • Measuring Activity vs. Result
  • Depreciation – a positive cash flow?
  • Failure in the income statement cycle–Revenue shortfall and net loss
  • Re-cycling cash flow -  Depreciation and CPFA
  • Revenue Shortfall and Operating Leverage

Chapter 6:  Cash flow 2.0 -the FASB95 Cash Flow Statement

  • CF 2.0: IAS7/FASB95 Cash Flow Statement – limitations    
  • Reclassifying cash flow activities    

Chapter 7:  A Cross-Cycle Cash Flow Statement

  • The objective and structure of a “cross-cycle” cash flow statement
  • CF 3.1 Analysis: Period-to-period cross-cycle cash flow for AT&T
  • CF3.1:  The Cross-cycle Cash Flow Statement
  • Limitations of all cash flow statements
  • Final thoughts on AT&T: the risk of a negative trading cycle
  • Cash flow versus Creditworthiness

Chapter 8:  Conclusions: What’s Urgent, What’s Not

  • Better Credit
  • #1 Urgent Priority: Correcting the measures of liquidity
  • #2 Priority: High-definition repayment ratios
  • #3 Priority: Correcting hybrid, cross-cycle repayment ratios
  • #4 In the future: The new cross-cycle cash flow statement
  • Better Sales – Empowering the relationship manager
  • Crafting—and Selling—a financial strategy

Glossary / Table of Acronyms 

book & website copyright all rights reserved 2012 Stephen Bartoletti