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Compute the incremental cash flow from operations

CFo each year = Est. of Earnings before taxes (+ or -) direct overhead
- income taxes + depreciation (+ or -) fixed capital (+ or -) working capital

The overhead, depreciation, fixed capital and working capital are the incremental amounts for this action plan.

Subtract any new overhead not directly related to operations

Graphic of sales creating cash flowSubtract any training, new staff, etc., any additional costs beyond the capital investments for this action plan. If the action plan cuts indirect overhead, add it.

The action plan's value added

Value Added each year =
                        CFo from incremental sales
                          (+ or -) indirect overhead

For multi-year plans

In The Strategy's Value Chapter, I'll walk through those computations.

 

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Considerations on Costs and Benefits next page

 



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