Build a Cash Waterfall Model
This guide explains how to build and interpret a Cash Waterfall view in Model Reef. The Cash Waterfall shows how accrual based performance (EBITDA) converts to cash, including working capital, capex, debt and equity movements.
Steps
Ensure core variables are in place
Confirm that you have:
Revenue variables with realistic delays for customer payment terms.
COGS and Opex variables with delays for supplier payment terms.
Staff variables with pay timing and any lags.
Tax configuration with a usable effective tax rate.
Asset variables representing capex.
Liability variables for loans and other debt.
Equity and Dividends where relevant.
The Cash Waterfall is only as complete as the variables you feed into it.
Configure delays and payment terms
The Cash Waterfall relies heavily on working capital timing:
For each revenue variable:
Set delay to reflect Days Sales Outstanding, for example:
0 days for prepayment.
30 to 60 days for typical invoice terms.
For each COGS, Opex and Staff variable:
Set delay to reflect Days Payable Outstanding and payroll timing.
For tax:
Configure tax payment frequency and delays.
These settings control AR, AP and other payables that will appear in Change in Net Working Capital.
Review P&L and Cashflow Statement
Before opening the Cash Waterfall:
Review the P&L:
Ensure Revenue, COGS, Opex, Staff, Depreciation, Interest, Tax and NPAT look reasonable.
Review the Cashflow Statement:
Confirm Operating, Investing and Financing cashflows make sense.
Check that Closing Cash reconciles with the Balance Sheet.
If these are materially wrong, fix variables first.
Interpret Change in Net Working Capital
Change in Net Working Capital captures the effect of timing differences between P&L and cash:
Positive Change in Net Working Capital typically means:
Cash is being tied up (for example growing AR or inventory like behaviour).
Negative Change in Net Working Capital means:
Working capital is releasing cash (for example reducing AR or extended AP).
Use this to understand whether growth is cash hungry or cash generative.
Analyse capex and financing flows
In the Cash Waterfall:
Confirm Capex matches your asset variable definitions.
Check Interest Paid and Debt Movements:
Drawdowns increase cash.
Repayments decrease cash.
Look at Equity injections and Dividends:
Equity increases cash.
Dividends reduce cash.
Together these show how financing decisions impact net cash.
Validate reconciliation to Cashflow Statement
The final Net Change in Cash in the Cash Waterfall should match:
The Net Cashflow in the Cashflow Statement.
The change in the Cash balance on the Balance Sheet.
If they do not match, check for:
Missing or misclassified variables.
Incorrect category mappings.
Edge cases in working capital modelling.
Check your work
All material revenue, cost, tax, capex, debt, equity and dividend flows are present as variables.
Delays and payment terms correctly generate AR and AP behaviour.
Change in Net Working Capital behaves intuitively.
Net Change in Cash in the Cash Waterfall matches the Cashflow Statement.
Troubleshooting
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