> For the complete documentation index, see [llms.txt](https://help.modelreef.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.modelreef.io/how-tos/core-modelling/build-a-cash-waterfall-model.md).

# 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.

{% hint style="info" %}
Before you start

You should already have:

* Revenue, COGS, opex and staff variables.
* Some capex and debt modelling, even if simple.
* Reasonable delay settings for revenue and expense cash timing.

If not, consider following the Full Financial Model guide first.
{% endhint %}

{% hint style="info" %}
What you will build

* A model where all major flows are represented as variables.
* A Cash Waterfall that:
  * Starts from Revenue, COGS, Opex and Staff.
  * Bridges through Change in Net Working Capital.
  * Shows capex, debt, tax, equity and dividends.
  * Ends at Net Change in Cash that matches the Cashflow Statement.
    {% endhint %}

***

## Steps

{% stepper %}
{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### Open the Cash Waterfall

* Navigate to the **Cash Waterfall** report or dashboard.
* Confirm the structure:
  * Revenue.
  * COGS.
  * Opex.
  * Staff.
  * EBITDA.
  * Change in Net Working Capital.
  * Tax.
  * Capex.
  * Interest.
  * Debt movements.
  * Equity injections.
  * Dividends.
  * Net Change in Cash.
    {% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
  {% endstep %}
  {% endstepper %}

***

## Check your work

{% hint style="success" %}

* 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.
  {% endhint %}

***

## Troubleshooting

<details>

<summary>Change in Net Working Capital is volatile or unintuitive</summary>

Recheck delay settings and ensure they reflect real payment terms.

</details>

<details>

<summary>Cash Waterfall does not match Cashflow Statement</summary>

Inspect variable types and categories; an incorrectly typed variable may appear in the wrong section.

</details>

<details>

<summary>Capex or debt missing from the waterfall</summary>

Confirm asset and liability variables are correctly set up as Assets and Liabilities, not generic Opex.

</details>

***

## Related guides

* [Fund Cash Flow (Capital Calls/Distributions)](/use-cases/portfolio-funds-vc-pe-and-family-offices/fund-cash-flow-capital-calls-distributions.md)
* [Getting Started](/help/getting-started.md)
* [Gross Profit Logic](/help/financial-outputs-and-valuation/gross-profit-logic.md)
* [Naming & Autocomplete](/syntax/variables-syntax/naming-and-autocomplete.md)