Prospective Analysis 10 CHAPTER
10 CHAPTER Prospective Analysis
Short-Term Forecasting Objective and Users Main objective is analysis of liquidity Sufficient cash to effectively operate Ability to service short-term debt Liquidity is of interest to both internal and external users Managers(cash for operations) Creditors(loan safeguards) Investors (return implications) Auditors(going concern analysis) Numerous others
Short-Term Forecasting Objective and Users Main objective is analysis of liquidity - Sufficient cash to effectively operate - Ability to service short-term debt Liquidity is of interest to both internal and external users - Managers (cash for operations) - Creditors (loan safeguards) - Investors (return implications) - Auditors (going concern analysis) - Numerous others…
Short-Term Forecasting Cash Flow Relations Basic facts: Cash refers to cash and cash equivalents Cash is the most liquid of assets Nearly all transactions have an immediate or eventual impact on cash Some users consider receivables and inventories liquid assets given their nearness to cash
Short-Term Forecasting Cash Flow Relations Basic facts: - Cash refers to cash and cash equivalents - Cash is the most liquid of assets - Nearly all transactions have an immediate or eventual impact on cash - Some users consider receivables and inventories liquid assets given their nearness to cash
Short-Term Forecasting Cash Flow Relations Cash inflows and out flows are interrelated Cash flows are related to accruals and income Cash flows are subjected to managerial discretion Sales is the driver of operating cash flows Cash forecasts depends on the quality of the sales forecast Most cash flows relate to and depend on sales
Short-Term Forecasting Cash Flow Relations Cash inflows and out flows are interrelated Cash flows are related to accruals and income Cash flows are subjected to managerial discretion Sales is the driver of operating cash flows - Cash forecasts depends on the quality of the sales forecast - Most cash flows relate to and depend on sales 1 4 2 3
Short-Term Forecasting Forecasting sales Sales forecasting requires analysis of: Directions and trends in sales Market share Industry and economic conditions Productive and financial capacity Competitive factors
Sales forecasting requires analysis of: Directions and trends in sales Market share Industry and economic conditions Productive and financial capacity Competitive factors Short-Term Forecasting Forecasting Sales