141124 cash management cash forecasting
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This document discusses cash forecasting and cash management. It describes constructing cash forecasts using different models, including receipts and disbursements models and distribution models to estimate liquidity over various time periods. Factors to consider in choosing a forecasting method are discussed, such as availability and reliability of data, time horizon, and sensitivity. Short-term investing instruments are also briefly mentioned.
141124 cash management cash forecasting
- 1. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 2.2. Cash Forecasting
- 2. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 1.Construct a cash forecast and automate the creation of some of the information contained within it; 2.Create a feedback loop for gradually increasing the accuracy of the forecast; 3.Describe several related topics, including the bullwhip effect and the integration of business cycle forecasting into the cash forecast. Objectives
- 3. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oIs used to estimate liquidity position of the company for periods ranging from the current day up to one year. oShort term forecasts (0-3) months are used primarily for managing liquidity. oOperational forecasts (1-12 months) are used for medium term working capital and financing requirements. oLong-term forecasts (1-5 years) are used for planning strategic financial goals. Cash Forecasting
- 4. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oCombines what is known about expected receipts (e.g. collections form customers, interest, and maturing investments with expected disbursement (e.g. expected check presentments, payroll, taxes, interest payments, and loan repayments). Cash Budgeting
- 5. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oA cash forecasting model primarily based on a combination of actual and estimated receivables and payables. Receipts and Disbursement Model NOVEMBER DECEMBER JANUARY Cash Receipts xxx xxx xxx Less: Cash Payments (xxx) (xxx) (xxx) Net Cash Position xxx xxx xxx Add: Opening Cash Position xxx xxx xxx Ending Cash Position xxx xxx xxx Projected Balance xxx xxx xxx Fund Surplus (Deficit) xxx xxx xxx
- 6. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oCan be used when sufficient historical data on cash flow is available. Distribution Model Distribution Forecast Business Day after Check Issued % of Value Expected to Clear Day of Week % Effect 1 35 Monday -5 2 25 Tuesday 0 3 20 Wednesday -2 4 20 Thursday +2 5 10 Friday +5 Expected Distribution of a Php250,000.00 Payroll on Wednesday December 7.
- 7. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Distribution Model Date Business Day after Issue Day of Week % of Expected to Clear Clearing Forecast December 8 1 Thursday 35+2 = 37 Php92,5000 December 9 2 Friday 25+5 = 30 75,000 December 12 3 Monday 20-5 = 15 37,500 December 13 4 Tuesday 10+0 = 10 25,000 December 14 5 Wednesday 10 2 = 8 20,000
- 8. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oUsed for long-term forecast. Uses historical data thus, it is possible to extrapolate relationships between certain elements of the profit and loss statement and the balance sheet. Cash Modelling
- 9. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Cash Modelling Pro Forma Financials (Amount in Thousand of Pesos) Profit and Loss Actual Projected Balance Sheet Actual Projected Sales 4,000 4,600 Cash 350 403 COGS -3,000 -3,450 Receivable 500 575 Selling / Admin Costs -500 -575 Inventory 200 230 Depreciation -100 -85 Net Assets 650 565 Interest Exp. -31 -16 Total Assets 1,700 1,773 EBIT 369 474 Payables 650 748 Tax (40%) -148 -190 Long-Term Debt 350 200 Net Income 221 284 Equity 700 884 Dividends -100 Total Liabilities 1,700 1,832 Retained Earnings 184 Net Surplus 59
- 10. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 oA more complex statistical technique, usually performed using a computer. Regression Analysis
- 11. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Availability of Data. Using information that is readily available makes it possible for the cash manager to produce a timely forecast. Unfortunately, businesses typically do not maintain data in formats that allow easy access for statistical analysis. Choosing a Forecasting Method
- 12. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Reliability of Data. In producing the forecast, the cash manager will have to assess the probability of being correct about the timing of cash flows. Assured Cash Flows. (e.g. tax payments, dividends, debt repayments, and maturing investments) Reliable Cash Flows. (e.g. collection from credit sales, payroll, vendor payments) Unreliable cash flows. (e.g. foreign currency collections, outcome of pending lawsuits, and costs of work stoppages.) Choosing a Forecasting Method
- 13. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Reliability of Data. Unanticipated Cash Flow. (e.g. cash inflows or outflows resulting from totally unexpected circumstances such as outbreak of war in an area where company is involved, or the opportunity to buy up inventory due to a competitor going out of business) Time Horizon. The more distant in time the forecast, the less accurate and the less useful it becomes to the cash manager. Choosing a Forecasting Method
- 14. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Reliability of Data. Sensitivity. Things change, and the cash manager must be prepared to review, refine, and adjust the forecast frequently in light of internal and external amendments. Choosing a Forecasting Method
- 15. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 Government Securities Treasury Securities Agency Securities State and Local Government Municipal Obligations Instruments of Short Term Investing
- 16. BA FINC 46 TREASURY MANAGEMENT By: KLIEF T. AMORES, 2014 THANK YOU!