Cash Flow Analysis for Ebbtide Limited and Linetec Limited Project Understanding the Cash Flow Dynamics

 

Cash Flow Analysis for Ebbtide Limited and Linetec Limited Project

Understanding the Cash Flow Dynamics

1. Committed Costs:

   • These represent costs that Linetec must pay in the specified month.
   • Example: £20k in Month 1, £15k in Month 2, etc.

2. Cash Outflow:

   • For Milestone Months (3, 6, 7, 8): 20% of the committed cost is paid in the same month, and 80% is invoiced to be paid in the next month.

3. Stage Payments:

   • These are payments Ebbtide makes to Linetec at milestone events to ensure Linetec avoids cash shortfalls.

4. Cumulative Cash:

   • Reflects Linetec’s total cash at any given point during the project.

---

Cash Flow Table

Month	Committed Cost (£k)	Cash Paid (£k)	Milestone Stage Payments (£k)	Advance Payment (£k)	Cumulative Cash (£k)
1	20	20		40.8	20.8
2	15	15			5.8
3	29	5.8	58.2		58.2
4	17	23.2 (80% of M3)			35
5	18	18.	97.2		114.2
6	39	7.8			106.4
7	52	41.6 (80% of M6)	51.8		116.6
8	31	47.8			68.8
9	18	25.2 (80% of M8)			43.6
10	9	9			34.6

Key Observations

1. Stage Payments:

   • First Milestone (Month 3): £58.2k to ensure Linetec has enough to cover the prototype costs and maintain a small buffer.
   • Second Milestone (Month 5): £97.2k to cover increasing expenses and prepare for the main build.
   • Third Milestone (Month 7): £51.8k to address the peak costs during this phase.

2. Advance Payments:

   • To ensure smooth operation in the initial months, Ebbtide pays £40.8k upfront (Months 1 and 2 costs + buffer).

3. Cumulative Cash:

   • Linetec maintains positive cumulative cash throughout the project, ensuring no need for external borrowing.
   • Peak cumulative cash is observed after the second milestone payment.

---

Insights and Recommendations

• Financial Stability: With the planned stage payments, Linetec avoids cash shortfalls and borrowing requirements.
• Buffer Allocation: A buffer of £5.8k ensures minor fluctuations or unexpected costs do not disrupt the project.
• Milestone Timing: Payments at critical milestones align with the cash flow needs of the project, particularly during the expensive build phases (Months 5–7).

Pooja Mattapalli