Client Analysis Software (CAS)
Cash Flow Analysis
When reviewing cash flows, we consider on an annual basis:
- Net Cash Flows – which tells us whether your situation is cash flow positive or negative
- Debt Recycling – use of cash flow to recycle non-deductible debt into deductible debt
- Taxation – which tells us how tax affects your cash flow
- Cash Flow Mapping – to make sure that bank and loan accounts are functional, cost effective and tax efficient.
The above cash flow reviews are performed for each of your accounts and at a tax entity level.
The upper cash flow limit is the amount by which your cash flow position may reduce by before becoming cash neutral as a consequence of a reduction in your personal exertion income and an increase in interest rates. The extent of the permissible variations in income and interest rates is determined by your Investment Risk Profile.
The lower cash flow limit is set by subtracting from the upper limit the maximum amount of liquidity (capital) that you are prepared to use (through capitalisation of negative cash flow) each year to continue operating with your gearing strategy. The amount of liquidity used each year and the number of years which you are prepared to utilise liquidity to fund the shortfall is once again determined by your Investment Risk Profile.
The more aggressive a client’s Investment Risk Profile, the greater the amount of risk they are prepared to accept. This results in a reduced upper and lower limit, with the reduced lower limit being reflective of a greater propensity to use capital reserves to fund potential cash flow shortfalls.
We also use the Gearing Analysis (and associated Liquidity and Cash Flow Analysis) later in the advice process as a ‘forward looking’ tool to demonstrate the effect of our proposed strategies and recommendations on your overall financial situation.