Operating Cashflow
This article explains how Operating cashflows are calculated in Model Reef.
You will learn:
What counts as Operating cashflow.
How Operating cashflows are derived from variables and timing.
How Operating cashflows relate to P&L and working capital.
Operating cashflow is the cash generated or consumed by core operations.
Components of Operating cashflow
In Model Reef, Operating cashflow includes:
Receipts from customers
Cash collected from Revenue variables after applying delays and payment terms.
Payments to suppliers and staff
Cash paid for COGS, Opex and Staff variables.
Includes supplier invoices, rent, utilities, payroll, pension or super and payroll taxes.
Interest paid
Cash interest payments on loans and similar Liabilities.
Interest expense is accrued in P&L, interest paid is an Operating cash outflow.
Tax paid
Cash tax payments based on Tax variables and payment timing.
These items together define cash generated by operations before investing and financing activity.
Link to the P&L
Operating cashflow and the P&L are linked but not identical:
P&L uses accrual timing.
Operating cashflow uses cash timing.
Working capital accounts such as Accounts Receivable, Accounts Payable and Tax Payable exist to reconcile the difference.
For example:
Revenue accrued now but collected later increases Accounts Receivable and does not yet appear in receipts from customers.
Costs accrued now but paid later increase Accounts Payable and do not yet appear in payments to suppliers and staff.
Over time, as receivables and payables unwind, the cumulative Operating cashflow will track the accrual based performance.
Working capital and Operating cashflow
Changes in working capital are the link between profit and Operating cashflow:
Accounts Receivable
If AR increases, cash receipts lag behind revenue, reducing Operating cashflow relative to P&L.
Accounts Payable
If AP increases, payments lag behind expense, increasing Operating cashflow relative to P&L in the short term.
Staff related payables, Tax Payable, Interest Payable
All contribute to differences between when costs are incurred and when cash is paid.
In the Cash Waterfall, these effects are summarised in the Change in net working capital line.
Analysing Operating cashflow
You can analyse Operating cashflow by:
Looking at total Operating cashflow over time.
Comparing Operating cashflow to EBITDA or NPAT.
Reviewing how changes in payment terms or delays affect the pattern.
Splitting by branch to see which units are cash generators or users.
Operating cashflow is a critical input for assessing liquidity, funding needs and valuation.
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