Using Cash Flow
Budgets to Improve
Cash Flow & Liquidity in
the Catfish Business
Carole R. Engle
Aquaculture/Fisheries Center
U. of Arkansas at Pine Bluff
Overview of Structure
and Interpretation of
Cash Flow Budgets
Engle, UAPB
Short & long-term financial
decisions:
• Can it generate enough value
over time to pay off the debts
(solvency)?
– Balance Sheets
• Is it profitable in the long run?
• Is it profitable in the short run?
• Can it generate enough cash
when needed to pay the bills
(liquid)?
Engle, UAPB
Financial Analysis:
Key Statements
 Financial Position
 Balance Sheet
 Profitability
 Budgets
 Income Statement
Cash Flow/Liquidity
 Cash Flow Statement
Engle, UAPB
Cash Flow Analysis: What Can
It Be Used For?
• Use it to develop a plan for adverse
conditions.
• Plan should consider budgeting
enough to be able to feed to obtain
adequate yields.
• Consider looking hard at fixed costs
as way to reduce overall costs.
Engle, UAPB
Cash Flow Analysis: What Can
It Be Used For?
• Whether there is a liquidity problem
• Whether there is a cash shortfall in
particular months.
• Whether the business can make its
payments on time.
• What the cash position of the
business is.
• If the operating line of credit is
adequate or not
Cash Flow Analysis:
What is the unit of analysis?
• Entire farm
Engle, UAPB
Cash Flow Analysis:
How Can It Help?
•
•
•
•
Analyze pattern of cash flow
Structure operating line of credit
Credit & loan applications
Decide on best timing for capital
purchases (equipment, land, etc.)
• Look to improve timing of
purchases of supplies, inputs
Engle, UAPB
Cash Flow Analysis: Structure
Item
Total cash inflow
Total cash outflow
Cash available
New borrowing
Ending cash balance
January
February
$611,090 $628,406
$14,940
$50,848
$596,150 $577,548
0
0
$596,150 $577,548
Engle, UAPB
Cash Flow Analysis: Sructure
Item
Beginning cash
Total cash outflow
Cash available
New borrowing
Ending cash balance
January
February
$578,834 $596,150
$14,940
$50,848
$596,150 $577,548
0
0
$596,150 $577,548
Engle, UAPB
Cash Flow Analysis:
Total Cash Inflow
Item
Beginning cash
Receipts from
catfish sold
Total cash inflow
January
February
$578,834
$596,150
$32,256
$32,256
$611,090
$628,406
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Cash Flow Analysis:
Operating cash expenses
Item
Feed
Fingerlings
…..
Total operating
expenses
January
February
$2,783
$5,565
0
$36,416
…..
…..
$14,940
$50,848
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Cash Flow Analysis: Debt Servicing
Item
January
February
Principal
0
0
Interest
0
0
Principal
0
0
Interest
0
0
Principal
0
0
Interest
0
0
Real estate loan
Equipment
Operating loan
Engle, UAPB
Cash Flow Analysis:
Summary of Debt Outstanding
Item
January
February
Real estate
0
0
Equipment
0
0
Operating
0
0
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Cash Flow Analysis with 50% of
catfish off-flavor and 30% financed.
Item
July
August
Total cash inflow
$63,387
$50,320
Total cash
outflow
Cash available
$80,239
$99,766
- $16,852
- $49,446
New borrowing
$26,852
$59,446
Ending cash
balance
$10,000
$10,000
Engle, UAPB
Cash Flow Analysis:
Summary of Debt Outstanding
Item
July
August
Real estate
0
0
Equipment
0
0
Operating
$103,259
$145,340
Payments are made on operating line of credit in each of these
months because there is a lien on the fish sold.
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Liquidity Measures for
256-acre Catfish Farm
Ratio
Interpretation
Interest
Coverage
Ratio
Relates interest to firm’s ability to service
debt. How much of firm’s returns to
assets available per dollar of interest.
Higher ratios more favorable.
Cash Flow
Coverage
Ratio
Debtservicing
ratio
Extent that excess cash provides cushion
for covering debt-servicing. Higher ratios
more favorable.
Cash required for interest and principal
payments. Lower ratios show lower debt
burden.
Engle, UAPB
Measures of Cash Flow Risk
for 256-acre Catfish Farm
Cash flow risk measure
Percent farm revenue can decline and still meet
cash flows
Percent farm expenses can increase and still
meet cash flows
Percent interest rates can increase and still meet
cash flows
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Liquidity Measures for
256-acre Catfish Farm
Ratio
Value
Interest Coverage Ratio
0.14
Cash Flow Coverage Ratio
5.63
Debt-servicing ratio
0.18
Engle, UAPB
Measures of Cash Flow Risk
for 256-acre Catfish Farm
Cash flow risk measure
Value
Percent farm revenue can decline
and still meet cash flows
0.45
Percent farm expenses can
increase and still meet cash flows
0.009
Percent interest rates can
increase and still meet cash flows
0.26
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How Are These Calculated?
• The training materials include
spreadsheets with: exercise
balance sheet, income statement,
cash flow budgets
• The correct versions, the financial
ratios, &
• Includes a brief interpretation of
each ratio and how to
improve it.
Engle, UAPB