UCA cash flow or Uniform Credit Analysis cash flow, is one method used to determine the ability of a company to repay a loan. Some would say UCA cash flow analysis is a more accurate, practical and easily understandable method to determine this ability, versus methods such as EBITDA (earnings before interest, taxes, depreciation and amortization), or net income plus depreciation. We provide a simplified definition of UCA cash flow.
Here is a simplified example of how UCA cash flow looks at a company’s financial situation:
1. Total Income from Product or Service Sales
minus Inventory, Production or Service Costs
= Gross Cash Profit
2. Gross Cash Profit
minus Operating Expenses
= Cash After Operations
3. Cash After Operations
plus/minus Other Income or Disbursements, and Taxes
= Net Cash After Operations
It is this Net Cash After Operations figure which represents monies that are available to service a debt. This is the bottom line. While it is not the only factor a lender looks at in judging a company’s ability to repay a loan, it is a key factor.
UCA cash flow analysis eliminates issues such as non-cash expenses for equipment depreciation, or inflated cash flow based on extending the time to pay vendors.
It also provides a more real-world picture of a company’s financial health and can give a lender a better idea of how a company manages its money and why it needs to borrow money – is it to increase inventory, production or services, or is it to cover operating expenses?
An accountant can help you further understand the definition of UCA cash flow, how it applies to your situation, and help you put a UCA cash flow analysis together. If you don’t already have an accountant that you trust, you should use Seva Call to find an accountant. We will connect you with up to three high quality professionals in just minutes!