The power of cashflow based risk metrics

If the focus of senior management is on current and forecasted gross margins, revenues, earnings, cashflow, or profits, then these should form the basis of the “at risk” measure rather than the more short-term, market value based, Value-at-Risk (VaR) metric. Adopting a cashflow based “at risk” measure will give greater insight into the business operations, enhance profitability and give insight into the effectiveness of hedging programs.