Monday, 20 January 2020

Unit 9: Cash Flows Forecasting and Treasury Management

0 comments

Unit 9: Cash Flows Forecasting and Treasury Management

The cash forecast is an estimation of the flows in and out of the firm’s cash account over a particular period of time, usually a quarter, month, week, or day.

Long-range forecasts are generally based on accounting projections and typically involved the generation of various scenarios for future economic and technological environments.

The purposes of daily forecasting are to assist management in scheduling transfer in cash concentration, funding disbursement accounts, controlling field deposits, and making short-term investing and borrowing decisions.

While sensitivity analysis methodologies give useful information, it is generally the overall variation from the means of the monthly cash deficits and surpluses that concerns management for planning purposes.

This information on the probability distributions of cash surpluses and deficits is necessary to plan advantageous strategies.

To estimate these probability distributions, a simulation of the overall uncertainty in the ending cash balances for cash of the period within the forecast is needed.

To get these, the methods of simulation analysis are used.

A cash flow problem arises when a business struggles to pay its debts as they become due.

 The more of the working capital is tied up in stock and outstanding invoices, the more likely it is that the business has a cash flow problem.

Treasury management is defined as the corporate handling of all financial matters, the generation of external and internal funds for business, the management of currencies and cash flows and the complex strategies, policies and procedures of corporate finance.

Cash forecast: The cash forecast is an estimation of the flows in and out of the firm’s cash account over a particular period of time, usually a quarter, month, week, or day.

Compounded growth: This method is used when a particular financial variable is expected to grow at a steady growth rate over time.

Daily cash forecasts: Daily cash forecasts attempt to project cash inflows and outflows on a daily basis 1 or more days into the future.

Financial forecasting: Financial forecasting is the estimation of the future level of a financial variable, often a cash flow, asset level, or liability level.

Long-range forecasts: Cash forecasts of one or more years into the future are needed primarily to assess the viability of the firm’s long-range financing and operating policies.

Medium-range forecasting: We consider medium-range forecasts to be those that cover cash flows during the next 12 months.


No comments:

Post a Comment