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Cash Flow Forecasting: A Template-Based Guide from AFP Members: $95.00 Non-Members: $135.00 Format: E-document

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Summary

At a limited-time introductory price, this cash flow forecasting guide offers the fundamentals needed to start or review a forecasting program. Techniques covered in the guide are supported with Excel templates that demonstrate direct, indirect and statistical forecasting methods.

As treasury disciplines become increasingly interrelated with other corporate finance activities, the objectives of cash flow forecasting programs become more strategic and vital to the economic health of an organization.

Excerpt

The method a company uses for a given forecast depends greatly on the forecasting horizon. Many companies use short-term forecasts based on information relating to receipts and disbursements that will occur in the near future. There are a number of methods that incorporate individual cash flow details to develop accurate short-term cash projections.

DIRECT METHOD

When to Use
The direct method typically is best for forecasts with short-term horizons when data is available that is very close to real-time. This brings more "actual" data into the "forecast" estimate.

Limitations
There is still a need to forecast the difference between the known (cash flows that have happened, or will happen with a high degree of certainty), and the unknown and uncertain. For some organizations this difference may be very small, so the variances are likely small. Also, the model is heavily dependant on the accuracy, completeness and timeliness of data.

Receipts and Disbursements Forecast
Projecting receipts and disbursements is fundamental to short-term cash forecasting. This begins with the creation of separate schedules of cash receipts and disbursements. Both schedules are prepared on a cash basis rather than an accrual basis. This method tends to forecast cash accurately in the short-term and near medium-term, especially when accounts receivable and accounts payable data are incorporated.

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