Treasury management - Forecasting Flashcards
Why do company do forecasting (budget)?
To find out if they can pay their supplier, pay their employees, if they can afford to launch a new product, buy new equipment…
What are things to look at when forecasting
a/p a/r sales h.r. taxes law department r&D production capital market
What are the 3 sources of treasury flows?
- Operations: collected accounts receivable, products and expenses.
- Investments: Interest, dividend, acquisitions and sales
- Financing: Issues and reimbursement.
What are the usage of cash flows
Operation: – Suppliers accounts – Current expenses Financial: – Debt repayment – Acquisition
What is the Treasurer’s goal?
Treasurer’s goals :
• Forecast flow of funds : Balance sheet
Other tools
• Forecast the timing of fund flow
• Assess the level of available funds and short-term
debt availability.
• Define the level of rounding, consolidation and
sensitivity of the forecast
What are the complexity of forecasting?
Geographical location of the users Currencies Systems used Knowledge of data Frequency of updating External factors: interest rates, foreign exchange, economic conditions
What are the 4 steps to treasury budget?
- sale forecast: one of the most difficult task. Usually performed by the marketing/sales department
- Forecast of inflows
- Forecast of outflows
- Calculation of cash flow at the end of the month and
decision to borrow (short cash) or invest (long cash)
What are the various levels in treasury forecast
planning?
- Treasury forecast
Forecast of resources based on a few years - Treasury Budget (cash)
Refined treasury forecast on a shorter period - Daily follow-up
What are the role and function of treasury cash budget?
• Anticipate and negotiate short term financing
• Anticipate excesses and overdrafts
• Select the most appropriate financing or investment vehicle
• Ensure the follow up of objectives; measure differences between expectation and actual results
take action and appropriate corrective measures
Give me a summary of treasury Cash Budget?
In summary
The main tool to manage cash flow. Allows to indicate at which point the company will have excesses and shortages of cash and when external financing will be necessary. The liquidity problem is present in most corporations and is a moving target.
What are the structure type of treasury forecast?
- Inflows
- Outflows
- Treasury flow (inflow - outflow)
- If # 3 negative, need financing if # 3 positive can
invest - Borrow or invest
- Indirect fees
- Balance of account
What are other elements to consider when treasury forecasting?
- Depreciation
- Fiscal implication
- Taxes
What are the two categories of data collection?
Qualitatives
– Based on jugement of individuals
– Data collection individual or in group.
Quantitatives
– Analysis of historical data: Averages (simple, moving …), Linear Regression simple or multiple
What are the types of data collection?
Intuitive
– Forecast based on knowledge gained through
experience
Formal
– Based on knowledge of business as well as an analytical examination of historical data
– Generally involves the use of mathematical models
Implicit
– Derived from information which is implied, understood or
suggested but not specifically expressed
Explicit
– Forecast derived from information which is clear and concise
What are some judgmental approach?
Individual – Provided by one person Committee – Forecast developed through a series of meetings Delphi – Information collected and discussed anonymously
What is Extrapolative forecasting (or time
series forecasting)
It assumes that all variables remain constant
over the short term forecasting horizon.
Assumes a relationship exists between
current data and historical data
What are some techniques for extrapolative forecasting?
Some techniques:
– Trend: simple moving average, weighted moving
average
– Exponential smoothing: with an alpha coefficient
– Decomposition:
Random component, chance that variation is due to
unexplained forces
Seasonal component
Cyclical component, the long run change is associated with the
general pattern of the business/economic cycle
What are some of the casual approaches?
Simple regression
– Y = a + bX
Input-output models
– Based on the concept that a given level of sales
or services requires a specified level of inputs
Cross Impact analysis
– Based on the compilation of events which may
have an impact on the future cash flows
What are some of the Distribution Approaches
Based on single variable
– Interval flow t = (proportion) t (period total)
Based on multiple variables
– Interval flow tw = (proportion)tw (period total)
How do you forecast?
Identify cash drivers in your company
Apply “how to” techniques for forecasting individual cash flow line items
Learn statistical techniques for dealing with cash flow
uncertainties; both on-going and one-time events
Investigate techniques for both predicting the year-end cash balance and reconciling it to the short-term cash forecast
Explore how to perform and interpret cash forecast
variance analyses
