1. Copyright  2005 by Thomson Learning, Inc. Chapter 12 Cash Forecasting Order Order Sale Payment Sent Cash Placed Received Received Accounts Collection Accounts Collection Time ==> Time ==> Accounts Disbursement Accounts Disbursement Invoice Received Payment Sent Cash Disbursed Invoice Received Payment Sent Cash Disbursed Order Order Sale Payment Sent Cash Placed Received Received Accounts Collection Accounts Collection Time ==> Time ==> Accounts Disbursement Accounts Disbursement Invoice Received Payment Sent Cash Disbursed Invoice Received Payment Sent Cash Disbursed

2. Copyright  2005 by Thomson Learning, Inc. Learning Objectives v Explain importance of short-term cash forecasts. v Indicate why the monthly cash budget is important to top management, and specify the two objectives for its development. v Indicate how daily cash forecasting differs from monthly forecasting. v Explain the receipts and disbursements, pro forma balance sheet, and distribution methods of cash forecasting.

3. Copyright  2005 by Thomson Learning, Inc. Forecasting Monthly Cash Flows v Importance to top management v Monthly cash forecast objectives v Forecasting philosophy v Forecast parameters v Statistical tools

4. Copyright  2005 by Thomson Learning, Inc. Forecasting Philosophy v Number and type of forecasts v Expenditure on forecasts v External versus internal forecasts v Quantitative versus judgmental forecasting

5. Copyright  2005 by Thomson Learning, Inc. Forecast Parameters v Forecast horizon v Variable identification v Modeling the cash flow sequence v Format of the receipts and disbursement forecast v Interpreting the receipts and disbursement forecast v Developing the receipts and disbursement forecast v Modified accrual method v Pro forma balance sheet method v Model estimation v Model validation

6. Copyright  2005 by Thomson Learning, Inc. Forecasting Daily Cash Flows v Horizon v Variable identification v Modeling the cash flow sequence v Structuring the daily cash forecast v Distribution method v Model estimation v Model validation

7. Copyright  2005 by Thomson Learning, Inc. The Distribution Method v Using the method for disbursements v Using the method for collections v Example v Final comments

8. Copyright  2005 by Thomson Learning, Inc. Summary v The chapter began with a discussion of the philosophy and environment within which cash forecasts are made. v The value of forecasts is to borrow less or extend investment maturities. v The two major cash forecasting time intervals (monthly and daily) were presented and the processes for variable identification, modeling the cash flow sequence, model estimation, and model validation discussed.