Liquidity forecast and covenant headroom
Cash, availability, headroom, shortfall.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: liquidity forecast and covenant headroom.Updated 30 September 2026
What it does
The cash roll-forward and what it means. Opening cash plus receipts less disbursements gives cash before the revolver; the revolver draws only what holds the minimum operating balance, limited to availability, and repays from cash above it; liquidity is closing cash plus what is left to draw. The covenant is tested on liquidity every week, and a shortfall, cash below the minimum with nothing left to draw, is the amount new money must supply.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 6–9: Cash at the start of week 1, Revolver drawn at the start of week 1, Trade receivables at the start of week 1, Inventory (held flat over the forecast)
- Liquidity, rows 6–10: Opening cash, Receipts, Disbursements, Net operating cash flow…
- Liquidity, rows 20–25: Draw needed to hold the minimum cash, Draw, limited to availability, Repayment from cash above the minimum, Repayment forced by a borrowing base below the drawn balance…
- Liquidity, rows 28–34: Availability, closing, Total liquidity: cash plus availability, Headroom over the minimum liquidity covenant, Covenant breached (1)…
- Summary, rows 5–13: Net operating cash flow over the forecast, Minimum liquidity, Week of minimum liquidity, Peak revolver drawn…
What a reviewer looks for
- A covenant tested on cash alone.
- A revolver that draws to its commitment on day one.
- A shortfall funded by a negative cash balance nobody notices.
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