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Flashcards in CH14-Cash Flow Forecasting Deck (22)
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1
Q

Describe Simple Moving Average

A
  • Statistical method, time series.
  • Developed using an Average of Past Values.
  • The more data points, the greater chance a random movement will be eliminated through averaging.
  • The margin by which a trend will be missed is greater
  • Dampens seasonal turning points
2
Q

Analysis of sales (the independent variable) to cash flows (the dependent variable) data for linear regression produces an intercept of -$124,666 and a slope of 0.1823.
What does the intercept mean?

A

The intercept is the net cash flow when sales equal 0.

I.e. If there were no sales, net cash outflows would be $124,666 that period

3
Q

Analysis of sales (the independent variable) to cash flows (the dependent variable) data for linear regression produces an intercept of -$124,666 and a slope of 0.1823.
What happens when sales drop by $1?

A

Net cash flow drop by slope of line, $0.1823

4
Q

What does a receipts schedule consist of/include?

A
  • projection of collections from customers (both cash sales and payments on A/R),
  • other cash inflows like interest and dividend income,
  • nonrecurring cash inflows like cash from asset sale and external financing
5
Q

Which basis is used for a receipts schedule?

A
Cash basis (not accrual basis)
B/c receipts schedule is forecasting cash, not earnings.
6
Q

What is a prerequisite to using sales to predict net cash flows using regression analysis?

A

Correlation

7
Q

Exponential Smoothing formula

A

Next-Period Forecast = (Alpha * Current - Period Actual) + [(1 - Alpha) * Current - Period Forecast]

8
Q

What does Exponential Smoothing forecast do?

A

Forecasts cash based on most recent actual, most recent forecast, and alpha is used to weight these two values.
The closer alpha is to 1, the more weight on the past actual rather than forecast.

9
Q

Which forecasting horizon is used to establish and mange target balances for bank compensation?

A

Short-term

10
Q

Which forecasting horizon is used to determine the company’s need for short-term credit or availability of funds for ST investing?

A

Medium-term

11
Q

Which forecasting horizon is used as a benchmark to compare actual to projected CFs?

A

Medium-term

12
Q

Which forecasting horizon is used by Rating Agencies and Financial Institutions?

A

Long-term

13
Q

8 Cash Flow forecasting uses

A
  1. Manage Liquidity
  2. Maximize Returns
  3. Minimize Interest costs
  4. Control Financial Activities
  5. Meet strategic objectives
  6. Budget capital
  7. Manage currency exposure
  8. Compliance Reqs
14
Q

3 Issues/Opportunities in CF Forecasting

A
  1. Simplicity
  2. Collaboration and Communication
  3. Consistency
15
Q

How to calculate Projected Closing Cash Position AKA Daily Cash Forecast AKA Cash Report?

A

+ Day’s Opening Available Balances
+ Expected Settlements
- Projected Disbursement

16
Q

3 Cash Flow Types

A
  1. Operating
  2. Investing
  3. Financing
17
Q

4 Degrees of CF Certainty

A
  1. Certain
  2. Predictable
  3. Less predictable
  4. Volatile
18
Q

What are Certain CFs?

A

interest, principal payments, dividends, royalties, rent, taxes

19
Q

What are Predictable CFs?

A

CF based on patterns or number of employees.

Cash collections from credit sales, payroll, clearing of vendor checks.

20
Q

What are Less Predictable CFs?

A

new product sales, unexpected repairs, claims, timing of marketing costs, travel, bonuses

21
Q

What are Volatile CFs?

A

FX rates, commodity prices, seasonal flux, interest rates

22
Q

Best practices in Cash Forecasting

A
  1. appropriate detail
  2. appropriate platform
  3. invest appropriate resources
  4. Validate forecast
  5. Cooperate and Communicate
  6. Ensure forecast is usable
  7. Disclose assumptions