Cash Forecast Analysis

Carefully and deftly calculated cash forecast helps a firm to:
(i) Select securities with suitable maturities and practical risk,
(ii) Avoid over and under-financing and
(iii) Capitalize on profits by investing idle money. Short-run cash forecasts serve many forms of purposes. For an example, multi-divisional firms use them as an instrument to organize the flow of funds between their various divisional levels as well as to make financing preparations for these operations. These forecasts may also be useful in shaping the margins or least balances to be preserved with banks. Still other usages of the forecasts are explained below:

• Planning bargains of short and long-term debt.
• Preparation of payments in piecing together with the capital

• Checking accurateness of long-range cash forecasts
• Taking benefit of cash discounts accessible by suppliers
• Managing credit guidelines.
Short-term Forecasting Methods
Two most normally methods of short-term cash forecasting are:
• The receipts and disbursements method is generally engaged in forecasting for limited tenure ,such as a week or a month.
• The adjusted net income method, on the other hand, is preferred for longer tenure stretching amid few months to a year.
Receipts and disbursements method:
Cash flows in and out in most of the companies on a continuous source. The main aim of receipts and disbursements forecasts is to conclude that these flows during a prearranged tenure.In the case of those companies where each item of income and expense encompasses flow of cash, this method is preferred to keep a close check over cash. Three broad sources of cash inflows can be identified:
(i) operating,
(ii) non-operating,

In a case of credit purchases, a time lag will occur for cash payments. This will be contingent on the credit terms presented by the suppliers. It is fairly easy to predict the expenses of the firm concluded in the short run. Firms usually prepare capital expenditure budgets; therefore, capital expenditures are predictable for the purposes of the cash budget. Similarly, payments of dividend do not vary widely and are paid on specific dates. Cash outflow can also occur when the firm reimburses its long-term debt. Such payments are generally premeditated and, therefore, there is no hassle in predicting them. Once the forecasts for cash receipts and payments have been established, they can be shared to obtain the net cash inflow or outflow for each month. The net balance for each month would designate whether the firm has excess cash or deficit and the peak cash necessities would also be indicated. If the firm has the strategy of upholding some least cash balance, provisions must be made to maintain this minimum balance in tenures of a deficit. The cash deficit can be chanced by borrowings from banks. Alternatively, the firm can postpone its capital expenditures or