Cash Flow Forecasting
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Table of contents
- Cover
- Contentsv
- Prefaceix
- 1 Overview of cash flow forecasting1
- Introduction1
- What is a healthy cash flow?3
- What are the uses of cash flow forecasting?6
- 2 Summary of financial statements8
- Introduction8
- The annual report and accounts10
- Statements of standard accounting practice, and financial reporting standards11
- Consequences of fraudulent manipulation of accounts13
- The auditors’ report14
- The balance sheet15
- Assets and liabilities16
- Assets16
- Liabilities23
- Summary23
- Debtors24
- Creditors26
- Stock and work in progress27
- Borrowing as shown in a company’s accounts29
- Banking facilities29
- Fixed assets30
- Depreciation31
- Book value31
- Authorized and issued share capital32
- Reserves33
- The profit and loss account33
- Turnover34
- Problems with financial statements and auditors35
- Conclusion38
- 3 Factors impacting financial performance41
- Introduction41
- Strategic analysis – the external environment42
- Environmental analysis43
- PEST analysis44
- Competitive analysis44
- Strategic analysis – the value chain46
- Value chain competition example48
- Management49
- Profitability and performance50
- Return on equity50
- Net profit margin51
- Profitability and performance measurement51
- The profit margin and asset turnover relationship52
- Reliability of financial information52
- Asset management54
- Asset turnover and liquidity54
- Stock turnover56
- Collection period57
- Payment period57
- Net working assets to sales and overtrading57
- Capital structure58
- Financial leverage58
- Financial flexibility61
- Interest cover62
- Cash flow63
- Cash and profit63
- Operational cash flow65
- Cash flow forecasting66
- Percent-of-sales forecasting67
- Forecasting methodology69
- Sustainable growth69
- Corporate failure70
- Reasons for failure71
- Recent research72
- Failure prediction models73
- 4 Cash flow forecasting of financial statements76
- Why cash flow analysis?76
- Purpose of projections79
- Historical performance and variable input analysis81
- Defining the initial assumptions82
- Procedure for constructing projections83
- One approach to constructing projections84
- Profit and loss statement projections86
- Net sales projections92
- Evaluating volume and pricing components95
- Relating a firm’s performance to industry and economic conditions96
- Example98
- Completing the profit and loss projections99
- Cost of goods sold/gross margin projections100
- Selling, general and administrative expense (SGA)103
- Operating profit103
- Example104
- Profit before tax105
- Balance sheet projections109
- Assets112
- Fixed assets, capital expenditure and depreciation114
- Example114
- Inventory turnover115
- Example116
- Accounts receivable turnover117
- Example117
- Cash and marketable securities118
- Example119
- Liabilities119
- Current liabilities119
- Accounts payable120
- Example120
- Accrued expenses payable121
- Debt runoff schedule + future facility122
- Example123
- Net worth125
- Example125
- New money need125
- Amortization schedule for new debt129
- Completed AmaOS forecasted balance sheet131
- Cash flow projections134
- Construction and evaluation of future cash flow model134
- Cash flow ratio analysis144
- Interest cover ratio144
- Financing payments cover ratio145
- Total debt payout145
- Long term debt payout146
- Debt service ratio146
- Sensitivity analysis146
- Protection and control in term lending150
- Covenants, events of default, and their relationship to projections150
- Conclusion153
- Chapter self-test155
- Chapter self-test answers158
- 5 Cash flow forecasting of project finance160
- Introduction160
- Details of project and borrower161
- Cash flow forecasting163
- Step one163
- Observations163
- Step two164
- Observations165
- Step three166
- Observations167
- Step four167
- Observation170
- Conclusion171
- 6 Pro forma forecasts using AMADEUS electronic databases172
- Appendices185
- 1 Credit rating agency rating scales186
- 2 Country risk criteria189
- Political risk profile189
- Economic risk profile190
- S&P’s sovereign rating profile195
- 3 Summary of lending types199
- 4 Complete AmaOS spreadsheet200
- Suggested reading209
- Glossary210
- Profitability indicators237
- Turnover and efficiency indicators238
- Financial position indicators239
- Cash flow terms240
- Cash ratios240
- Index243
- A243
- B244
- C244
- D246
- E246
- F246
- G247
- H247
- I247
- J248
- K248
- L248
- M248
- N249
- O249
- P249
- Q250
- R250
- S250
- T251
- U252
- V252
- W252
- Y252
- Z252
Budgets are like road maps -- they provide a direction for a corporates financial management. Balance sheets and statements of revenues also provide insights into how well a company is following that direction. But cash flow and cash flow forecasts are what guide the day-to-day itinerary for an organization.
Budgets and cash flow are dynamic -- adjustments and changes can and should occur. If you understand what you are looking at, you can use cash flow to create better budgets and thus more accurate cash flow forecasting.
Cash Flow Forecasting outlines the techniques required to undertake a detailed analysis of the cash flow dynamics of the business from both a historical and forward looking perspective.
Cash Flow Forecasting explains how to:
* Determine appropriate cash flow figures from pro forma financial statements
* Interpret detailed cash flow forecasts and understand the difference between profit and cash flow
* Conserve or generate cash in the short term
* Evaluate different methods of project evaluation
* Recognize the limitations of accounting information in valuing companies
*Inspired by basic entry level training courses that have been developed by major international banks worldwide
* Will enable students and those already in the finance profession to gain an understanding of the basic information and principles of cash flow forecasting
* Includes questions with answers, study topics, practical "real world" examples and extensive bibliography
Budgets and cash flow are dynamic -- adjustments and changes can and should occur. If you understand what you are looking at, you can use cash flow to create better budgets and thus more accurate cash flow forecasting.
Cash Flow Forecasting outlines the techniques required to undertake a detailed analysis of the cash flow dynamics of the business from both a historical and forward looking perspective.
Cash Flow Forecasting explains how to:
* Determine appropriate cash flow figures from pro forma financial statements
* Interpret detailed cash flow forecasts and understand the difference between profit and cash flow
* Conserve or generate cash in the short term
* Evaluate different methods of project evaluation
* Recognize the limitations of accounting information in valuing companies
*Inspired by basic entry level training courses that have been developed by major international banks worldwide
* Will enable students and those already in the finance profession to gain an understanding of the basic information and principles of cash flow forecasting
* Includes questions with answers, study topics, practical "real world" examples and extensive bibliography