141124 cash management cash forecasting
TRANSCRIPT
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2.2. Cash Forecasting
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1. Construct a cash forecast and automate the creation of some of the information contained within it;
2. Create a feedback loop for gradually increasing the accuracy of the forecast;
3. Describe several related topics, including the bullwhip effect and the integration of business cycle forecasting into the cash forecast.
Objectives
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o Is used to estimate liquidity position of the company for periods ranging from the current day up to one year.
o Short term forecasts (0-3) months are used primarily for managing liquidity.
o Operational forecasts (1-12 months) are used for medium term working capital and financing requirements.
o Long-term forecasts (1-5 years) are used for planning strategic financial goals.
Cash Forecasting
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o Combines what is known about expected receipts (e.g. collections form customers, interest, and maturing investments with expected disbursement (e.g. expected check presentments, payroll, taxes, interest payments, and loan repayments).
Cash Budgeting
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o A cash forecasting model primarily based on a combination of actual and estimated receivables and payables.
Receipts and Disbursement Model
NOVEMBER DECEMBER JANUARY
Cash Receipts xxx xxx xxx
Less: Cash Payments
(xxx) (xxx) (xxx)
Net Cash Position xxx xxx xxx
Add: Opening Cash Position
xxx xxx xxx
Ending Cash Position
xxx xxx xxx
Projected Balance xxx xxx xxx
Fund Surplus (Deficit)
xxx xxx xxx
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By: KLIEF T. AMORES, 2014
o Can be used when sufficient historical data on cash flow is available.
Distribution Model
Distribution Forecast
Business Day after Check Issued
% of Value Expected to Clear
Day of Week % Effect
1 35 Monday -5
2 25 Tuesday 0
3 20 Wednesday -2
4 20 Thursday +2
5 10 Friday +5
Expected Distribution of a Php250,000.00 Payroll on Wednesday December 7.
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By: KLIEF T. AMORES, 2014
Distribution Model
Date Business Day after Issue
Day of Week % of Expected to Clear
Clearing Forecast
December 8 1 Thursday 35+2 = 37 Php92,5000
December 9 2 Friday 25+5 = 30 75,000
December 12 3 Monday 20-5 = 15 37,500
December 13 4 Tuesday 10+0 = 10 25,000
December 14 5 Wednesday 10 – 2 = 8 20,000
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o Used for long-term forecast. Uses historical data thus, it is possible to extrapolate relationships between certain elements of the profit and loss statement and the balance sheet.
Cash Modelling
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Cash Modelling Pro Forma Financials
(Amount in Thousand of Pesos)
Profit and Loss
Actual Projected Balance Sheet Actual Projected
Sales 4,000 4,600 Cash 350 403
COGS -3,000 -3,450 Receivable 500 575
Selling / Admin Costs
-500 -575 Inventory 200 230
Depreciation -100 -85 Net Assets 650 565
Interest Exp. -31 -16 Total Assets 1,700 1,773
EBIT 369 474 Payables 650 748
Tax (40%) -148 -190 Long-Term Debt 350 200
Net Income 221 284 Equity 700 884
Dividends -100 Total Liabilities 1,700 1,832
Retained Earnings
184 Net Surplus 59
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o A more complex statistical technique, usually performed using a computer.
Regression Analysis
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Availability of Data. Using information that is readily available makes it possible for the cash manager to produce a timely forecast. Unfortunately, businesses typically do not maintain data in formats that allow easy access for statistical analysis.
Choosing a Forecasting Method
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Reliability of Data. In producing the forecast, the cash manager will have to assess the probability of being correct about the timing of cash flows. Assured Cash Flows. (e.g. tax payments,
dividends, debt repayments, and maturing investments)
Reliable Cash Flows. (e.g. collection from credit sales, payroll, vendor payments)
Unreliable cash flows. (e.g. foreign currency collections, outcome of pending lawsuits, and costs of work stoppages.)
Choosing a Forecasting Method
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By: KLIEF T. AMORES, 2014
Reliability of Data. Unanticipated Cash Flow. (e.g. cash
inflows or outflows resulting from totally unexpected circumstances such as outbreak of war in an area where company is involved, or the opportunity to buy up inventory due to a competitor going out of business)
Time Horizon. The more distant in time the forecast, the less accurate and the less useful it becomes to the cash manager.
Choosing a Forecasting Method
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By: KLIEF T. AMORES, 2014
Reliability of Data. Sensitivity. Things change, and the cash
manager must be prepared to review, refine, and adjust the forecast frequently in light of internal and external amendments.
Choosing a Forecasting Method
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By: KLIEF T. AMORES, 2014
Government Securities Treasury Securities Agency Securities State and Local
Government Municipal Obligations
Instruments of Short Term Investing
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By: KLIEF T. AMORES, 2014
THANK YOU!