Q: When backing out loans to owners, do you back out the entire loan owed to owner or just principal and interest payments?
A: In adjusting Net Income to arrive at Business "Cash Flow", we back out the amount of the loan to the owner or partner in the year in questions, e.g., 2018 or 2019. The amount of the loan in the year in question is the amount of cash flow provided by the company to its owner or partner during the year. Since loans are frequently advance distributions, we consider it as an operating event identical to a distribution. Regardless, a loan to an owner or partner reduces the cash flow available to service a company' s interest bearing debt.
Note, too, that the loan to owners or partners is the loan in the year in question and not the total amount of loans that may have been provided over a period of years.
The interest expense and principal repayment are included in the company’s total for interest expense and the prior period current maturities of long-term debt – its interest-bearing debt service for the year in question. They are not adjusted in any manner.
Q: Can you make available an Excel template for the global cash flow for future use?
A: The last page on the slide deck that you received has two worksheets that you can readily reproduce in Excel. We have not created a generic worksheet since the number of related parties is subject to change substantially from credit to credit.
Course overview: Global Cash Flow