01
Build the bridge from profit to cash
The profit–cash gap may come from receivables, inventory, contract assets, prepayments, payables, deferred revenue, capitalisation and non-cash items. One ratio is not enough; the gap must be explained through the operating chain.
If earnings growth comes with slower collection, more advance funding and shorter supplier terms, the buyer is also acquiring a continuing funding obligation.
02
Separate structural funding from temporary movement
Project, engineering, concession and fast-growth businesses may naturally have long cash cycles. The question is whether funding unwinds with the project and whether the company can survive the worst point, not whether annual cash equals profit.
Split working capital into normal operating need, growth investment, abnormal occupation and potentially unrecoverable amounts, then analyse by customer, project, ageing and collection path.
03
Put sustainable earnings into valuation
Valuation should not mechanically use reported earnings. Build a sustainable-earnings bridge by removing non-recurring, non-repeatable and unusual recognition, adding maintenance investment and testing cash under scenarios.
When critical gaps remain unexplained, reduce forecast confidence, widen scenarios, change payment timing or preserve options rather than hiding weak evidence inside a more precise model.