Q: The math on Slide 24 for 2019 AP calculation doesn’t seem to add up?
A: The math seems okay. ($396,382) / ($1,109,202) = 0.35735749. (0.35735749) x $1,899,801 = $678,908. $678,908 minus $2,367,035 (the 2018 A/P balance) = $1,688,127, which is the amount of the balance that would be paid down in 2019 – a cash outflow.
Q: With this accrual reduction analysis you are showing us, how do these cash flow projections differ from the Schedule K-1 tax return analysis we performed prior? Like, if we use the tax returns income, what's this cash flow for?
A: We used Schedule K-1 information previously to help estimate Schumacher's personal cash flow surplus or deficit. And as we determined, his personal liquid assets were the better source of possible cash support in a crisis than any flawed estimate of personal cash flow available to help service debt.
In this Session, we completed projected cash flow statements, which are based upon accrual financial statements and not on business income tax returns, to estimate the projected cash flow available from each company to meet its debt service as well as the combined or global cash flow from a) all companies and from b) Fritz Schumacher to meet the collective debt service for all companies. Business income tax returns play no role in this projection process.
Accrual financial statements were also the source of information for the historical business cash flows we completed in previous Sessions for our borrower, Sequoia Properties, to assess the borrower cash flow before the Shadelands Glen apartment acquisition.
Course overview: Management Assessment, Competitive Forces, and Projected Performance