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Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Chapter 12Chapter 12Cash ForecastingCash Forecasting
OrderOrder Order Order Sale Sale Payment Sent Cash Payment Sent Cash PlacedPlaced Received Received Received Received Accounts CollectionAccounts Collection < Inventory > < Receivable > < Float >< Inventory > < Receivable > < Float >
Time ==>Time ==> AccountsAccounts Disbursement Disbursement
< Payable > < Float >< Payable > < Float > Invoice Received Payment Sent Cash DisbursedInvoice Received Payment Sent Cash Disbursed
OrderOrder Order Order Sale Sale Payment Sent Cash Payment Sent Cash PlacedPlaced Received Received Received Received Accounts CollectionAccounts Collection < Inventory > < Receivable > < Float >< Inventory > < Receivable > < Float >
Time ==>Time ==> AccountsAccounts Disbursement Disbursement
< Payable > < Float >< Payable > < Float > Invoice Received Payment Sent Cash DisbursedInvoice Received Payment Sent Cash Disbursed
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Learning ObjectivesLearning Objectives
Explain importance of short-term cash Explain importance of short-term cash forecasts.forecasts.
Indicate why the monthly cash budget is Indicate why the monthly cash budget is important to top management, and specify the important to top management, and specify the two objectives for its development.two objectives for its development.
Indicate how daily cash forecasting differs Indicate how daily cash forecasting differs from monthly forecasting.from monthly forecasting.
Explain the receipts and disbursements, pro Explain the receipts and disbursements, pro forma balance sheet, and distribution methods forma balance sheet, and distribution methods of cash forecasting.of cash forecasting.
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Forecasting Monthly Cash FlowsForecasting Monthly Cash Flows
Importance to top managementImportance to top management Monthly cash forecast objectivesMonthly cash forecast objectives Forecasting philosophyForecasting philosophy Forecast parametersForecast parameters Statistical toolsStatistical tools
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Forecasting PhilosophyForecasting Philosophy
Number and type of forecastsNumber and type of forecasts Expenditure on forecastsExpenditure on forecasts External versus internal forecastsExternal versus internal forecasts Quantitative versus judgmental forecastingQuantitative versus judgmental forecasting
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Forecast ParametersForecast Parameters Forecast horizonForecast horizon Variable identificationVariable identification Modeling the cash flow sequenceModeling the cash flow sequence Format of the receipts and disbursement forecastFormat of the receipts and disbursement forecast Interpreting the receipts and disbursement Interpreting the receipts and disbursement
forecastforecast Developing the receipts and disbursement Developing the receipts and disbursement
forecastforecast Modified accrual methodModified accrual method Pro forma balance sheet methodPro forma balance sheet method Model estimationModel estimation Model validationModel validation
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Forecasting Daily Cash FlowsForecasting Daily Cash Flows
HorizonHorizon Variable identificationVariable identification Modeling the cash flow sequenceModeling the cash flow sequence Structuring the daily cash forecastStructuring the daily cash forecast Distribution methodDistribution method Model estimationModel estimation Model validationModel validation
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
The Distribution MethodThe Distribution Method
Using the method for disbursementsUsing the method for disbursements
Using the method for collectionsUsing the method for collections
ExampleExample
Final commentsFinal comments
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
SummarySummary
The chapter began with a discussion of the The chapter began with a discussion of the philosophy and environment within which cash philosophy and environment within which cash forecasts are made.forecasts are made.
The value of forecasts is to borrow less or The value of forecasts is to borrow less or extend investment maturities.extend investment maturities.
The two major cash forecasting time intervals The two major cash forecasting time intervals (monthly and daily) were presented and the (monthly and daily) were presented and the processes for variable identification, modeling processes for variable identification, modeling the cash flow sequence, model estimation, and the cash flow sequence, model estimation, and model validation discussed.model validation discussed.
