Podcast
Questions and Answers
What is one way to obtain a business cycle forecast specific to the industry in which a company operates?
What is one way to obtain a business cycle forecast specific to the industry in which a company operates?
- Conduct a market survey
- Subscribe to a forecasting service (correct)
- Report on published forecasts
- Hire a financial analyst
What is the primary focus of controls when a forecast is issued on a daily basis?
What is the primary focus of controls when a forecast is issued on a daily basis?
- Retaining a copy of the forecast
- Investigating significant variances from the preceding day's forecast (correct)
- Matching the forecast against a standard forecast checklist
- Obtaining approval of a knowledgeable person
What is an additional control required when a forecast is generated less frequently?
What is an additional control required when a forecast is generated less frequently?
- Hiring an external auditor
- Conducting a sensitivity analysis
- Matching the latest forecast against preceding forecasts (correct)
- Investigating significant variances from the preceding day's forecast
Why does a forecast require more approvals when it is generated less frequently?
Why does a forecast require more approvals when it is generated less frequently?
What is the purpose of obtaining the approval of a knowledgeable person in cash forecasting control?
What is the purpose of obtaining the approval of a knowledgeable person in cash forecasting control?
What is a benefit of developing an in-house forecasting model?
What is a benefit of developing an in-house forecasting model?
What is the purpose of matching the latest forecast against a standard forecast checklist?
What is the purpose of matching the latest forecast against a standard forecast checklist?
Why is it important to retain a copy of the forecast?
Why is it important to retain a copy of the forecast?
What is the primary objective of cash forecasting in an organization?
What is the primary objective of cash forecasting in an organization?
What is the treasury position of a company?
What is the treasury position of a company?
What is the primary benefit of cash forecasting for an organization?
What is the primary benefit of cash forecasting for an organization?
What is the disbursements method used in cash forecasting?
What is the disbursements method used in cash forecasting?
What is the primary focus of cash flow forecasting?
What is the primary focus of cash flow forecasting?
What is cash flow in the context of cash forecasting?
What is cash flow in the context of cash forecasting?
What does a cash position analysis entail?
What does a cash position analysis entail?
What is the core of any cash management system?
What is the core of any cash management system?
What is the primary goal of measuring cash forecast accuracy?
What is the primary goal of measuring cash forecast accuracy?
What is the benefit of automating cash forecasting?
What is the benefit of automating cash forecasting?
What is the bullwhip effect in the context of cash forecasting?
What is the bullwhip effect in the context of cash forecasting?
What is the purpose of regularly comparing forecasted to actual results in cash forecasting?
What is the purpose of regularly comparing forecasted to actual results in cash forecasting?
What is a consequence of the bullwhip effect on cash forecasting?
What is a consequence of the bullwhip effect on cash forecasting?
What is a common source of data for cash forecasting?
What is a common source of data for cash forecasting?
Why is attention to processes that provide source data important for cash forecasting accuracy?
Why is attention to processes that provide source data important for cash forecasting accuracy?
What can be used to identify the daily or weekly timebuckets in which payments are scheduled to be made?
What can be used to identify the daily or weekly timebuckets in which payments are scheduled to be made?
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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.
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