Cash Flow Analysis Checklist

Lock the period under review (most recent month-end or quarter-end) before pulling reports. If the close is not yet hard-closed, note which sub-ledgers are still open — running cash flow analysis against a soft-close trial balance is the most common reason figures shift between draft and final.

Export the indirect-method cash flow statement plus comparative periods (current quarter, prior quarter, prior year same quarter) from QBO, Xero, NetSuite, or Sage Intacct. Also pull the trial balance, A/R aging, A/P aging, and fixed asset roll-forward — these are the workpapers you'll tie cash flow lines back to.

The first line of the indirect-method statement should equal P&L net income to the penny. Variances usually indicate a posted-after-close entry or a class/dimension filter mismatch in the report. Resolve before proceeding — every downstream reconciliation depends on it.

Sum book balances across all reconciled cash and equivalents accounts; agree to the bottom of the cash flow statement. Flag any account with reconciling items aged over 30 days — stale outstanding checks and unreconciled deposits distort the change-in-cash line.

Build the change-in-working-capital schedule: A/R, inventory, prepaids, A/P, accrued expenses, deferred revenue. Each line should reconcile to the balance sheet movement. A growing A/R that outpaces revenue growth is the classic earnings-quality red flag — note DSO trend explicitly.

Tie depreciation to the fixed-asset roll-forward, amortization to the intangibles schedule, and stock-based comp to the equity ledger. Also walk bad-debt expense, deferred tax, and any impairment charges. Each non-cash add-back should match its source schedule, not just plug to a number.

Compute the cash flow to net income ratio (CFO ÷ NI). A sustained ratio below 1.0 means earnings are not converting to cash — usually receivables build, inventory build, or aggressive revenue recognition. A ratio above 1.0 driven by depreciation alone is fine; driven by deferred revenue collected upfront warrants a sustainability note.

Triggered when earnings quality is weak. Pull A/R aging by customer; identify any single customer over 10% of receivables and check collection status. Pull inventory turns by SKU class; flag obsolescence candidates. Review revenue cutoff: any large invoice in the last week of the period gets a contract review for delivery vs. recognition timing.

Split capex into maintenance vs. growth using the fixed-asset addition detail. Compare maintenance capex to depreciation — sustained maintenance capex below depreciation indicates the asset base is being run down. Growth capex should tie to a board-approved budget; flag any unbudgeted addition over the firm's threshold.

Tie disposal proceeds to the fixed-asset retirement schedule and the gain/loss on the P&L. Note whether disposals are recurring (fleet turnover, normal course) or one-time (facility sale, divestiture) — only the recurring portion belongs in normalized free cash flow.

For any acquisitions, confirm cash paid agrees to the closing statement and the held-back / earnout portion is properly classified. For marketable securities, check classification (trading vs. AFS vs. HTM) drives whether the activity hits operating or investing. Misclassification is a frequent SSARS review note.

Tie loan issuances and repayments to lender statements; tie the ending principal balance to the GL. Separate principal from interest — interest belongs in operating, not financing. Walk any line-of-credit gross movement (separate draws and paydowns rather than netting) per ASC 230 if the original maturity exceeds 90 days.

Review dividend declarations and payment timing, share buybacks, and any new equity issuances. For S-corps and LLCs, distinguish distributions from guaranteed payments — distributions hit financing, guaranteed payments are operating. Tie to the equity roll-forward and shareholder basis schedules.

Pull the covenant schedule from each loan agreement. Compute fixed charge coverage, DSCR, leverage ratio, and minimum liquidity using the period-end figures. Document the cushion on each test. A cushion under 15% gets surfaced to the CFO before quarter-end so a waiver can be negotiated proactively rather than reactively.

Pull the rolling 13-week cash forecast or annual budget cash flow that was in place at the start of this period. Compute variance by line — operating receipts, payroll disbursements, vendor payments, debt service. Recurring variance over 10% on a major line means the forecast model needs a recalibration before the next cycle.

Run downside scenarios in Float, Dryrun, or the FP&A model: revenue down 15%, DSO extended 15 days, a top-3 customer delays 60 days. Document the lowest projected cash balance over the next four quarters and the date it occurs. This drives the liquidity conclusion below.

Triggered when the forward outlook is mixed or negative. Identify available levers: revolver capacity, A/R factoring, capex deferral, vendor term extension, expense controls. Rank by speed-to-cash and reversibility. Surface to the CFO and treasurer before the projection is locked.

Calculate current ratio, quick ratio, operating cash flow ratio (CFO ÷ current liabilities), and cash conversion cycle (DSO + DIO − DPO). Compare against trailing 8-quarter trend and against industry benchmarks from RMA or BizMiner. Trend direction matters more than the absolute number for SMB analysis.

Calculate debt-to-equity, debt-to-EBITDA, interest coverage (EBIT ÷ interest), free cash flow (CFO − maintenance capex), and FCF yield. For pass-through entities, add back owner-discretionary comp before computing leverage multiples lenders will use.

Write a one-to-two page narrative covering: cash position vs. prior quarter, top three drivers of the change, earnings quality conclusion, capex posture, covenant cushion, forward outlook, and recommended actions. Keep it for the CFO or partner — they read the memo, not the workpapers.

Reviewer reads the memo and spot-checks two workpapers — typically the working capital walk and the covenant test. Sign-off locks the analysis package for the period; subsequent edits require a re-review.