CASH CONVERSION BRIDGE: ILLUSTRATIVE DEFAULT RECORD

INPUTS
Period A revenue: $12,000,000
Period B revenue: $13,200,000
Period A cost of sales: $7,200,000
Period B cost of sales: $8,000,000
Period A EBITDA: $2,400,000
Period B EBITDA: $2,800,000
Period A accounts receivable change: $150,000
Period B accounts receivable change: $400,000
Period A inventory change: $80,000
Period B inventory change: $150,000
Period A accounts payable change: $100,000
Period B accounts payable change: $70,000
Period A other working capital cash effect: −$20,000
Period B other working capital cash effect: −$50,000
Period A cash taxes: $180,000
Period B cash taxes: $230,000
Period A cash interest: $90,000
Period B cash interest: $110,000
Period A capital expenditure: $380,000
Period B capital expenditure: $530,000
Period A other cash movements: −$10,000
Period B other cash movements: −$20,000
Period A reported free cash flow: $1,590,000
Period B reported free cash flow: $1,380,000

RECONCILIATION
Period A free cash flow conversion: 66.2%
Period B free cash flow conversion: 49.3%
EBITDA movement: +$400,000
Free cash flow movement: −$210,000
Incremental free cash flow conversion: -52.5%

WORKING-CAPITAL NORMALIZATION
Period A receivables investment / revenue: 1.25%
Period B receivables investment / revenue: 3.03%
Period A inventory investment / cost of sales: 1.11%
Period B inventory investment / cost of sales: 1.88%
Period A payable funding / cost of sales: 1.39%
Period B payable funding / cost of sales: 0.88%

SYMMETRIC WORKING-CAPITAL ATTRIBUTION
Working-capital scale cash effect: −$28,571
Working-capital intensity cash effect: −$321,429
Other working-capital movement: −$30,000
Total working-capital cash movement: −$380,000

OTHER CASH MOVEMENT
Cash taxes: −$50,000
Cash interest: −$20,000
Capital expenditure: −$150,000
Other & reconciliation: −$10,000

COUNTERFACTUAL
Period B free cash flow at Period A working-capital intensity: $1,701,429
Period B conversion at Period A working-capital intensity: 60.8%
Conversion lost to working-capital intensity deterioration: 11.5 percentage points

SINGLE-LEVER PERIOD A FCF PRESERVATION
Cash improvement required for Period B FCF to equal Period A FCF: $210,000
Maximum Period B receivables increase: $190,000 (1.44% of Period B revenue)
Minimum Period B payable increase: $280,000 (3.50% of Period B cost of sales)
Maximum Period B capital expenditure: $320,000

FINDING
EBITDA increased by $400,000 while reported free cash flow declined by $210,000. Working-capital scale absorbed $28,571, while deterioration in receivables, inventory, and payable intensity absorbed a further $321,429. If Period B working-capital intensity had remained at Period A levels, Period B free cash flow would have been $1,701,429 and conversion would have been 60.8% rather than 49.3%. Holding all other Period B cash mechanisms fixed, receivables growth would need to be no more than $190,000 for Period B free cash flow to equal Period A free cash flow.

METHOD STATUS
Management-entered assumptions. Reported free cash flow remains the reconciliation anchor. Receivables cash investment is normalized to revenue; inventory cash investment and payable cash funding are normalized to cost of sales. For each normalized working-capital mechanism, movement between periods is split symmetrically between scale and intensity: the scale effect equals the change in scale multiplied by the average of Period A and Period B intensity, while the intensity effect equals the change in intensity multiplied by the average of Period A and Period B scale. Those two effects reconcile exactly to the entered movement without choosing a first-applied factor. Receivables and inventory are cash uses; payables are a cash source. Other working capital is a direct entered cash effect. Cash taxes, interest, and capital expenditure are cash uses. Other & reconciliation equals entered other cash movement plus any residual between the calculated cash bridge and reported free cash flow. The Period A working-capital-intensity counterfactual removes only the calculated working-capital intensity effect from Period B free cash flow. Single-lever thresholds hold every other Period B cash mechanism fixed. No external working-capital benchmark or hidden weighting is used.