Cash Flow Waterfall

Description
The cash flow waterfall ensures that each cash flow item occurs at the correct seniority to other items. This tutorial outlines key categories of cash flow items and how to present the cash flow waterfall in comparison to the cash flow statement in a project finance model.
In project finance, a project’s cash flow is summarised using a cash flow waterfall, which shows the priority of each cash inflow and outflow. The cash flow waterfall ensures that each cash flow item occurs at the correct seniority to other items. The cash flow waterfall becomes especially important when illustrating debt repayments of many debt tranches with reducing seniority.
The concept of cash flow waterfall is also covered in more detail in the Corality Academy’s project finance modeling training course, and in further detail in the advanced debt modeling and project finance course. The theory course of project finance is also covered in the Concepts & Applications course.
A cash flow waterfall is simple in its approach, as all cash flow items are placed in the order in which they occur. The main categories of a cash flow waterfall, in order of occurrence, are:
Revenues: Operating revenues and other income
Expenses: Operating expenses and capital expenses
Tax
Debt service: Principal repayments and interest paid
Distributions
Net movement in a cash balance