Show: Cash Flow

Another powerful tool in the Analysis page is the Cash Flow generator. Just like the Breakdown option, if you choose Cash Flow and run the analysis, Interest Radar will output a simulated cash flow based on the performance of the loans filtered by your selection.

As a cash flow is easier to understand when all the notes have the same term, you can only generate the list if you pick either 36 or 60 months.

The generated cash flow is based on a hypothetical investment of $1000. The output is a table with the actual numbers, a summary table with the results of the analysis, and a chart.

The columns in the table are:

  1. Month: ranging from 1 to the 36 or 60, depending on the filter you provided
  2. Beginning balance: the principal balance at the beginning of the month
  3. Loss %: the percentage of the principal that is lost due to defaults or late payments, i.e., how much principal (of the previous column) is never going to pay again
  4. Accumulated Loss: dollar amount of the principal loss, accumulated until this month
  5. Interest: dollar amount received as interest payment
  6. Amortization: dollar amount received as principal payment
  7. Ending Balance: the principal balance at the end of the month, calculated as: G = B + B x C + F. That amount will be the beginning balance for the next month

In the results box you have the following indicators:

  • IRR: The annualized IRR or the investment
  • Principal loss: Total principal loss as a percentage of the initial investment
  • Total received: Total payments in the course of the 3 or 5 years
  • Yield: Total received divided by the initial investment amount

Finally, the chart will plot a line representing the accumulated loss each month. A dotted line means the loss cannot be determined with accuracy for that period. In the table you’ll see such months with a question mark in the Loss % column. You can decide whether to consider zero loss for the undetermined period, or use the average loss for the determined period, by checking the Assume constant average loss checkbox under the Cash Flow option.

Another option for the cash flow generation is Assume total loss for late loans. When this is checked, every late status is considered 100% loss instead of the predicted loss rate for that status (see the table used for predicting loss in the Loss Rate explanation). If you’re a very conservative investor with a high degree of aversion to defaults, you can use this option to preview a very pessimistic scenario.


One thought on “Show: Cash Flow

  1. Pingback: Quick Start Guide | Interest Radar Blog

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