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Calculations and order of operations
Calculations and order of operations

This article explains the order of operations for computing cash flow in Canwi

Cameron Drury avatar
Written by Cameron Drury
Updated over a month ago

The financial model in Canwi follows a structured sequence to calculate yearly projections. The model iterates year by year, taking into account various financial factors, modifying them based on events, and computing the impact on assets, liabilities, income, expenses, and tax. The following is the step-by-step breakdown:

Step 1: Establish Initial Values

At the start of each year, the model retrieves or initializes key financial values from the previous year:

  • Cash Balance

  • Asset Values

  • Liability Values

  • Income Values

  • Expense Values

If it's the first year, these values are derived from declared initial values.

Step 2: Apply Initial Event Impacts

Events (such as life events) impact financial figures, but not all events require knowledge of taxable income. This step applies only non-income-dependent events to:

  • Income (modifications to income sources)

  • Expenses (modifications to recurring and one-time costs)

  • Assets (contributions to investment assets)

  • Liabilities (changes in outstanding debts and repayment schedules)

Step 3: Apply Asset and Liability-Based Impacts

Once non-income-dependent modifications are applied, additional financial impacts are calculated based on existing assets and liabilities. This includes:

  • Asset Impacts (e.g., dividends, rental income, interest)

  • Liability Impacts (e.g., loan repayments, interest costs)

  • Income Impacts (e.g., salary adjustments, investment returns)

  • Expense Impacts (e.g., CPI adjustments on costs)

These impacts are then applied to update the respective financial categories.

Step 4: Apply Growth Calculations

Now that all modifications have been incorporated, the system calculates growth for different financial components:

  • Asset Growth (e.g., capital appreciation of investments)

  • Liability Growth (e.g., remaining loan balance changes due to repayments and interest)

  • Income Growth (e.g., salary increases, wage growth)

  • Expense Growth (e.g., inflation adjustments on living costs)

Step 5: Calculate Cashflow Impacts

At this stage, the model calculates all financial inflows and outflows:

  • Income-Driven Cashflow Impacts (salary, business revenue, rental income, dividends)

  • Asset and Liability-Driven Cashflow Impacts (loan repayments, investment contributions)

  • Expense-Driven Cashflow Impacts (recurring bills, one-off expenses)

  • Non-Income Event Cashflow Impacts (from earlier event modifications)

Step 6: Determine Taxable Income & Taxation Impacts

Once all cashflows are determined, taxable income is calculated based on:

  • Taxable Income Impacts (salary, investment income, deductions)

  • Superannuation Contributions (from employment or voluntary contributions)

  • Tax Details Computation (income tax, Medicare levy, HELP debt repayments)

This produces an after-tax cashflow balance for the year.

Step 7: Recalculate Event Impacts (Income-Dependent Events)

Now that total family taxable income is known, the model reevaluates events that are dependent on income (e.g., means-tested government benefits or income-adjusted costs). These new event impacts are applied similarly to Step 2.

Step 8: Compute Net Cashflow and Ending Balances

With all cashflows and tax adjustments in place:

  1. Net Cash Impact is computed (Cash In - Tax - Cash Out)

    If Cash In - Tax - Cash Out is < 0 then a Cash Alert is generated which is displayed on the planning screen at the top of a year.

  2. Ending Cash Balance is determined (Starting Balance + Net Cash Impact)

    If End of Year Cash balance is negative a Cash Alert is generated

  3. Asset Values are Updated to reflect the new balances

  4. Liability Values are Updated to include repayments and interest

  5. Final Tax Summary is recorded.

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