Corporate financeLesson 2 of 2 in the course Financial Forecasting

Cash Forecasting, Short-Term Financing, and Growth Analysis

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

A forecast begins with the beginning cash balance. Anticipated cash inflows are added, and anticipated cash outflows are subtracted to estimate the cash position for the period.

Ending cash=Beginning cash+Cash inflows−Cash outflows\text{Ending cash} = \text{Beginning cash} + \text{Cash inflows} - \text{Cash outflows}

A forecast is built period by period, often month by month. It depends on assumptions about sales, collection periods, payment schedules, and management decisions. The forecast is only as useful as the assumptions and timing information behind it.

All flashcards

Cash flow forecast
An estimate of future cash receipts and payments used to anticipate cash surpluses or shortages.
Additional funds needed
Financing required to cover a forecast cash shortfall or maintain a required minimum cash balance.
Scenario analysis
Exploring a possible future by changing a coherent set of forecast assumptions.
Sensitivity analysis
Measuring how a selected forecast output responds when one input changes.
Pro forma statements
Estimates of a firm's future financial results and financial position.

Quiz questions

  1. What does net cash flow measure for a period?Answer: Cash inflows minus cash outflows.
  2. Why is a monthly cash deficit not necessarily equal to the financing a firm needs?Answer: The need also depends on starting cash, other movements, and the required minimum balance.
  3. How do scenario analysis and sensitivity analysis differ?Answer: Scenario analysis changes a coherent set of assumptions; sensitivity analysis changes one input at a time.
  4. What do pro forma financial statements estimate?Answer: A firm's future financial results and position.
  5. Why should managers assess a growth plan's cash effects as well as its expected profitability?Answer: Growth costs may require cash before the additional sales are collected.

Based on Principles of Finance by Julie Dahlquist, Rainford Knight (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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