Using Conventional Wisdom Cash Flow Changes

7.4 - Mindset 4

Question 1 - rate the urgencies

The issue here is to what extent have tariff impositions put us in a position if high concern about cash flow and liquidity - and what the options are in dealing with it.

This discussion is a sibling of Mindset 3 - effects on income and a concern about incurring losses. The actions displayed in Mindset on income we call CWA Blue, the first part of the CWA 1-2 punch - Conventional Wisdom Action for pressure situations. Here in Mindset 4 on cash flow we display CWA Green, the second part of Conventional Wisdom.

Mindset 4’s management task picks up after Mindset 3's options all included. Hence the tariff impact is embedded. The levers that can be pulled in Mindset 4 therefore have less to do with cash tariffs themselves. The CWA Green succeeds CWA Blue.

Question 2 - the cash flow task

The effect of CWA Blue actions may of not bring cash flow back to its pre-tariff level. Delays in cash effects may occur. In this case we have CSA Green showing that in fact that cash flow is fully benefitting for the income actions. The step to take here is to review that and examine nalance sheet possibilities for supplementing it.

The cash response to tariff increase looks complete. This example is a fairly substantial stress test - 40 percent of purchases undergo a 20% tariff. But this is possible and displays the approach for any level of tariff

The cash response to tariff increase looks complete, but the balance sheet still needs testing - here are two tests critical to banking.

Financial Statements for Reference

Note on cash flow formats:

Financial statements use the “indirect” format which among other things make it easier to see EBITDA. There is also a “direct” format which more closely aligns with a checkbook - how we see cash come and go out. The direct format is most often an effective way to manage and display cash when liquidity is a concern. The CWC approach ties into this “direct” format.