Our Approach to Dynamic Cash Flow Modelling
SCM Decisions demands more from conventional investment analysis to improve our client’s understanding of how value and risk in an uncertain world are distributed between investment stakeholders.
We pair dynamic cash flow modelling with an Integrated Valuation and Risk Modelling (IVRM) framework to better understand in a mining financial risk model how capital allocation and investment risk is influenced by:
We believe financial risk modelling and investment decision-making should be supported by a dynamic cash flow model that provides information about the characteristics, quality, and risk exposure of each stakeholder and generates insight into future management investment and operating decisions.
Static Cash Flow
This approach provides only summary statistics and investment quality information. This information can be misleading because it does not recognize the impact of non-linear cash flow structures and real options.
Dynamic Cash Flow
Dynamic cash flow modelling provides decision-makers with all four information types. This information is unbiased as non-linear cash flow structures and real options are recognized.
Integrated Valuation and Risk Modelling
Our approach uses an IVRM framework to provide insight into how an investment generates value and creates risk.
IVRM overlays a statistical depiction of investment uncertainty with a description of future management options and the structure of financing and taxation to generate a large number of future cash flow possibilities.
We translate the raw cash flow data into summary information by combining advanced finance theory, risk management concepts, decision analytics, and numerical business modelling with a dynamic mining financial risk modelling analysis.
Our investment analysis uses the following approach.
1
MAP UNCERTAINTY
Identify primary risk exposures and describe them with statistical models based on management outlook, technical knowledge, and financial market data
2
DESCRIBE THE INVESTMENT
Overlay the uncertainty map with management options, tax obligations, and financing details to create a dynamic investment cash flow model
3
EVALUATE THE INVESTMENTS
Generate a large number of cash flow scenarios and use option-based numerical methods to flag operating policy changes and distribute investment cash flows between equity, financing, and government interests
4
SUMMARIZE THE ANALYSIS
Provide key insights by reducing the raw data from the previous step into graphical and numerical summary information for investment decision-making