The Cash Flow statement - how to forecast

The Cash Flow statement - how to forecast

One of the three major financial statements of the company, the cash-flow report is used only sparely by FP&A (Performance management) professionals. The other two, the Profit and Loss (or SOCI) and the Balance Sheet (or SOFP) are used more intensively. The reasons behind it are both in the area of knowledge (you can not really use something you just learned a long time ago or vaguely heard about) but mostly the reality in the field. The P&L statement is used more often because it shows the performance of a company. And because it is always very difficult to introduce, explain and use as regular tool any financial statement when it comes to interacting with managers from other functions (Marketing, Sales, Supply Chain etc.).

However, companies can find themselves in troubles too. The financial crisis of 2008-2009, the Covid pandemic of 2020 but also individual cases can lead to situations when performance is no longer important (we know the company is at a loss) but surviving as an organization takes precedence. And it is in such moments when the focus shifts from wide use of P&L statements to cash flow statements, from being performant to staying solvable.

Bankruptcy is happening when there is no money left. And the impossibility of paying the due debt may or may not be related directly and on a short term with having losses.

And if we are not in a bad financial position with our company, we always get questions from the management, which are mostly caused by the fact that accounting is accruals and not cash based: "We had profit in the last months, why is our bank account empty?", "Can we do an early repayment for our credit? How much and in which month?", "Can we pay the promised $1 dividend per share in March 20xx?", "We have this large investment requiring that much money in May and June. Can we finance it by ourselves or will we need a credit?"

This course answers to the questions about the future, being focused on building a cash flow statement forecast or budget ("Can we do an early repayment?", "Can we pay the dividend?", "Can we finance the investment?" etc.).

We assume the existence of knowledge about the structure of a cash flow statement, the direct and indirect methods, the working capital concept, the three typical cash flow groups (operational, investing and financing) and we build on a forecast template proposal using direct method, identifying in P/L and B/S forecasts (or budgets) the required elements or deriving them while we also talk about maintaining (updating) our cash-flow forecast. At the end we also touch the usage of indirect method in forecasting operational cash flow as a difficult approach.

How much will we have tomorrow

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What you will learn

• General considerations about the Cash Flow statement
• Challenges of building a real life Cash Flow forecast – the direct method
• Template proposal

Rating: 3.5

Level: Expert Level

Duration: 1.5 hours

Instructor: Daniel Alexandru Petrescu