Hello everyone, 

Today, I'm sharing 12 cash flow insights that separate successful companies from those that fail.

But first, a quick announcement: 

Join me on August 1 for a free live training on The 6 Budgeting Mistakes That Kill Growth (and How Smart Leaders Fix Them).

💎 Register here 

Most CEOs see budgeting as a numbers exercise.

But successful leaders know it’s not just a finance task — it’s a leadership discipline. And they use budgeting to drive execution, align strategy, and deploy capital with intent.

In this masterclass, I’ll break down the six most common budgeting mistakes — and how smart executives fix them before they cost them control.

Now, let's talk about cash flow.

Cash flow = 12 interconnected metrics

I meet many senior leaders who are often surprised to learn that cash flow is not just one number.

What’s alarming is that this mistake causes more business failures than poor products or ineffective marketing. 

Cash flow is actually 12 interconnected metrics that determine your company's financial health. 

Master all 12 and you build a strong, sustainable business. Ignore them and you face serious financial risks.

Let's break down each one.

1. Operating Cash Flow (OCF)

OCF shows you the actual cash your daily operations generate.

You can show profit on paper while losing cash in reality. Many profitable companies go bankrupt because they cannot pay their bills. OCF removes accounting tricks and shows your real business health.

To calculate OCF, start with net income. Add back depreciation and amortization. Then adjust for working capital changes in receivables, inventory, and payables. This number tells you if your business generates or consumes cash.

Track OCF monthly and compare it to net income. A widening gap signals trouble ahead.

2. Investing Cash Flow (ICF)

This metric shows where you invest for the future and if those investments pay off.

ICF includes cash spent on equipment, acquisitions, and other investments. It also includes cash from selling assets. 

Negative ICF usually means you're investing in growth, which is fine if your OCF supports it. 

But negative OCF and negative ICF together means you're spending more than you make.

So balance is key. Your ICF should match your strategic plan and stay sustainable based on your operating cash. 

Track your ICF-to-OCF ratio. If you invest more than you generate for too long, you'll need outside money to survive.

3. Financing Cash Flow (FCF) 

This shows how you fund your business.

FCF includes cash from loans, stock sales, loan repayments, dividends, and stock buybacks. It shows how you raise and return capital. 

Positive FCF means you're raising funds. Negative FCF means you're returning cash to shareholders or paying down debt.

Watch the trend. Consistently positive FCF means you depend on outside funding. This works until markets change or your credit rating drops.

4. Free Cash Flow to the Firm (FCFF)

FCFF is cash available to all capital providers - both debt and equity - after expenses and necessary investments.

Calculate FCFF by taking OCF, subtracting capital expenditures, and then adding back after-tax interest payments. 

This metric is a key focus for buyers and investment bankers because it reflects the business’s true cash-generating power before financing decisions, making it the foundation for enterprise valuation calculations.

Your FCFF growth rate should exceed your cost of capital to create value.

5. Free Cash Flow to Equity (FCFE)

FCFE is what remains for shareholders after everyone else gets paid.

To calculate start with FCFF. Subtract after-tax interest payments. Add new debt raised. Subtract debt repayments. 

This number shows the maximum dividend you could pay or cash available for buybacks. Your company needs to watch this closely.

Compare actual dividends to FCFE. If you pay out more than you generate, you're borrowing to pay shareholders, and this cannot continue forever.

6. Discounted Cash Flow (DCF)

DCF isn’t just for valuing companies.

Use it to evaluate projects, price deals, choose between leasing and buying, and plan capital allocation. By discounting future cash flows, you can compare options on equal footing — and make smarter decisions.

Inside The CEO Financial Intelligence Program, I break this down step by step using my proprietary 16-in-1 financial model — showing you exactly how to move from forecast assumptions to cash flow projections to DCF analysis, so you can improve decision-making across your business.

Remember also that the discount rate matters. Use your company’s hurdle rate for company-level decisions, but adjust it based on risk when evaluating specific projects. Even small shifts in discount rates can drive big changes in discounted cash flow analyses — so set it thoughtfully.

7. Days Inventory Outstanding (DIO)

Every day inventory sits unsold is a day cash stays trapped.

To calculate it, divide the average inventory by the daily cost of goods sold. 

Lower is usually better, but too low causes stockouts. The right level depends on your industry. Compare to competitors and track your trend.

Reducing DIO by just a few days can free millions in cash. Improve demand forecasting, streamline supply chains, and eliminate slow products.

8. Days Sales Outstanding (DSO)

This shows how long your customers take to pay you.

To calculate DSO, divide accounts receivable by daily credit sales. High DSO means you give customers free loans. In B2B companies, DSO can determine success or failure. 

Great companies fail when they cannot collect payments fast enough.

Improve DSO with better credit policies, early payment discounts, and strong collection processes. Even a 5-day improvement can transform your cash position dramatically. 

9. Days Payables Outstanding (DPO)

Smart payment timing improves cash flow without borrowing. DPO measures how long you take to pay suppliers. 

Simply divide accounts payable by daily cost of goods sold. Extending DPO helps cash flow, but excessive delays damage supplier relationships. So look on how you can optimize (and not maximize). 

Pushing payment might help cash flow, but it could damage trust. Negotiate 45-60 day terms upfront instead of asking for extensions later. Keep suppliers happy by paying on time and communicating about delays. You'll need their flexibility during tough times.

10. Operating Cash Flow Margin (OCF)

This percentage shows how much of each sales dollar becomes actual cash.

Calculate by dividing OCF by revenue. Growing companies often have low or negative margins while investing. Mature companies should see steady or improving margins.

Track monthly and investigate changes. Declining OCF margin with steady profit margin often means working capital problems or aggressive accounting.

11. Cash DSCR & FCCR

Cash Debt Service Coverage Ratio (DSCR) measures if you can really pay your debts. Calculate it by dividing your operating cash by required debt payments.

If you have $150,000 in operating cash and $100,000 in annual debt payments, your DSCR is 1.5x. 

Fixed-Charge Coverage Ratio (FCCR) includes leases, insurance, and other fixed costs beyond just debt. Below 1.0 means you cannot cover obligations from operations. Banks typically require 1.25x minimum, but they don’t use operating cash flow - they use EBIT/EBITDA, so don’t let them fool you.

12. Current ratio (C/R)

Last but not least, the most simple liquidity metric which actually packs lots of valuable insights over time.

Divide current assets by current liabilities. Current assets include cash, receivables, and inventory that convert to cash within 12 months. Current liabilities are obligations due within 12 months, like payables, short-term debt, and accrued expenses. 

A ratio of 1.5 means you have $1.50 in liquid assets for every $1.00 you owe short-term. Below 1.0 suggests liquidity problems. Too high (above 3.0) means inefficient capital use. Target 1.5 to 2.0, but retailers might run at 1.2 while software companies are comfortable at 2.5. 

Compare to your industry average and track the trend. A declining ratio often appears before cash problems surface.

Remember to look deeper than the number. A 1.5 ratio could mean three different things. 

• First scenario: strong cash, normal receivables, and normal inventory means genuine health.

• Second scenario: low cash, high receivables, normal inventory means customers aren't paying, and you might run out of cash. 

• Third scenario: low cash, normal receivables, and excess inventory means products aren't selling. 

Same ratio, completely different risks. Always examine what creates your current ratio to understand your true position.

Understanding cash flow requires tracking all 12 metrics as these work together to reveal your complete financial health. 

Track them monthly so you can spot problems before they become crises and find opportunities before your competitors do.

Learn to use these metrics strategically inside the CEO Financial Intelligence Program

Knowing what to track is just the start.

What sets top executives apart is knowing how to interpret the numbers, challenge assumptions — including your CFO’s — and turn financial insights into better decisions.

That’s how leaders across the C-suite move from reacting to driving strategy.

That's exactly what we teach in the CEO Financial Intelligence Program, which is now open for enrollment. 

In this effective 6-week program, you'll gain the executive financial skills to:

• Challenge your CFO's recommendations with confidence and align with strategy

• Spot financial red flags months before they impact your business

• Make capital allocation decisions that drive growth and business value

• Understand which metrics matter for your specific business model

• Turn financial reports into strategic action plans and effective negotiating tools

• Lead board meetings with confident command of financial position and drivers.

You'll learn alongside other CEOs and C-suite executives who face similar challenges. Past participants report clearer decision-making, better alignment between strategy and financial goals, and measurable improvements in company performance. 

Just like Andrea Enrico Maria Boin (Partner at PWC) who said the following:

The next cohort starts August 27th, and spots are limited. 

Wishing you a wonderful weekend, 

Oana