Cash flow forecasting
0Cash flow forecasting, by Wikipedia https://en.wikipedia.org/wiki?curid=10092724 / CC BY SA 3.0
#Cash_flow
#Accounting_terminology
#Working_capital_management
#Forecasting
#Corporate_finance
#Management_accounting
Cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position; the cash flow forecast is typically based on anticipated payments and receivables.
See Financial forecast for general discussion re methodology.
Cash flow forecasting is an important element of financial management generally; Cash flow is the "life-blood" of all businesses — particularly start-ups and small enterprises — and if the business runs out of cash and is not able to obtain new finance,
it will become insolvent.
As a result, it is essential that management forecast （predict） cash levels.
How often, will depend on the financial security of the business: if the business is "struggling", management may assess, if not forecast, cash flow on a daily basis; if the finances are more stable, then this process may be weekly or monthly.
Key dependencies re the forecast: In the context of corporate finance, cash flow forecasting is the modeling of a company or entity's future financial liquidity over a specific timeframe: short term generally relates to working capital management,
and longer term to asset and liability management.
Cash usually refers to the company's total bank balances, but often what is forecast is treasury position which is cash plus short-term investments minus short-term debt.
Cash flow is the change in cash or treasury position from one period to the next period.
The cash flow projection is an important input into valuation of assets, budgeting and determining appropriate capital structures in LBOs and leveraged recapitalizations.
Depending on the organization, then, this modelling may sit with "FP&A" or with corporate treasury.
（See also Owner earnings.） Cashflows may be forecast directly, as well as by several indirect...
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