24 Questions
What is one way to obtain a business cycle forecast specific to the industry in which a company operates?
Subscribe to a forecasting service
What is the primary focus of controls when a forecast is issued on a daily basis?
Investigating significant variances from the preceding day's forecast
What is an additional control required when a forecast is generated less frequently?
Matching the latest forecast against preceding forecasts
Why does a forecast require more approvals when it is generated less frequently?
Because the company will rely on it for a longer period of time
What is the purpose of obtaining the approval of a knowledgeable person in cash forecasting control?
To ensure that the forecast is reviewed and initialized
What is a benefit of developing an in-house forecasting model?
It is more specific to the company's industry
What is the purpose of matching the latest forecast against a standard forecast checklist?
To ensure that all necessary items are included in the forecast
Why is it important to retain a copy of the forecast?
To provide an audit trail
What is the primary objective of cash forecasting in an organization?
To determine the liquidity needs of a company and plan accordingly
What is the treasury position of a company?
Cash plus short-term investments minus short-term debt
What is the primary benefit of cash forecasting for an organization?
Identifying potential cash flow problems with sufficient lead time
What is the disbursements method used in cash forecasting?
Analyzing historical cash flows to estimate future cash flows
What is the primary focus of cash flow forecasting?
Modeling the company's future financial liquidity
What is cash flow in the context of cash forecasting?
The change in cash or treasury position from one period to the next
What does a cash position analysis entail?
Determining the amount of cash available at a particular time
What is the core of any cash management system?
Cash flow forecasting
What is the primary goal of measuring cash forecast accuracy?
To ensure that better information is provided for future forecasts
What is the benefit of automating cash forecasting?
It avoids some of the most time-consuming steps
What is the bullwhip effect in the context of cash forecasting?
A phenomenon where demand forecasts yield supply chain inefficiencies
What is the purpose of regularly comparing forecasted to actual results in cash forecasting?
To correct the system and ensure better information for future forecasts
What is a consequence of the bullwhip effect on cash forecasting?
Cash forecasts that are also bullwhipped
What is a common source of data for cash forecasting?
Supplier invoice dates
Why is attention to processes that provide source data important for cash forecasting accuracy?
To ensure that better information is provided for future forecasts
What can be used to identify the daily or weekly timebuckets in which payments are scheduled to be made?
Off-the-shelf accounting software packages
Study Notes
Business Cycle Forecasting
- Business cycle forecasts can be obtained by reporting on published forecasts, subscribing to a forecasting service, or developing an in-house forecasting model.
Cash Forecasting Control
- If forecasts are issued daily, focus on incremental daily changes and investigate significant variances from the preceding day's forecast.
- Controls for less frequent forecasts include matching latest forecast against preceding forecasts, matching forecast against standard forecast checklist, obtaining approvals, and retaining a copy.
Measuring Cash Forecast Accuracy
- Continuously compare past forecasts to actual results to improve forecast accuracy.
- Identify and correct errors in source data to ensure better information for future forecasts.
Cash Forecasting Automation
- Automation can help avoid time-consuming steps in cash forecasting.
- Off-the-shelf accounting software packages can provide standard reports on daily or weekly time buckets for scheduled payments.
Bullwhip Effect
- The bullwhip effect refers to increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain.
- A company experiencing the bullwhip effect may have cash forecasts that are also affected.
Cash Management and Working Capital Management
- Learning objectives include determining a firm's liquidity needs, evaluating methods of hedging uncertain cash flows, and appraising approaches to net working capital management and liquidity management.
Cash Forecasting
- A cash position analyzes cash flows to determine available cash at a particular time.
- Cash forecasting models a company's future financial liquidity over a specific time frame.
- Cash refers to a company's total bank balances, while a treasury position includes cash plus short-term investments minus short-term debt.
Cash Forecasting Model
- The cash forecast is the core of any cash management system.
- The treasurer examines historical cash flows to create an estimate of the timing and amounts of future cash flows using a disbursements method.
Learn about ways to obtain, analyze, and report on business cycle forecasts, including using published forecasts and subscribing to forecasting services.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
