Lecture - Chapter 14 - Cash Forecasting

Identify the following forecasting horizons Used to establish and manage target balances for bank compensation

short-term

Identify the following forecasting horizons Used by financial institutions and rating agencies for credit analysis

long-term

Identify the following forecasting horizons Identify the following forecasting horizons

medium-term

Complete the percentage-of-sales pro forma statement forecasting steps: 1. Forecast _______ 2. Calculate projected ending cash balance by projecting (step 1) cash impact 3. Compare projected ending and target ______ and adjust pro forma statement to show fund source for shortfall or investment of surplus a. 1. Income statement and balance sheet; 3. Cash balance b. 1. Cash flow statement; 3. Cash balance c. 1. Income statement and balance sheet; 3. Profit d. 1. Cash flow statement; 3. Profit

a. 1. Income statement and balance sheet; 3. Cash balance

"MCA, Inc. upgraded the treasury workstation that had been in place for two years and used data from that 24-month period to develop a new short-term forecast. A trend factor was applied to controlled disbursements of 97% on a month-by-month basis and the variance to actual disbursements is less than 1%. Which of the following model validation techniques was utilized? " a. In-sample validation b. Documentation validation c. Ongoing validation d. Comparison validation

a. In-sample validation

"Company R has an AR collection pattern of 8% in the current month, 47% in the first month, 30% in the second month, 10% in the third month, and 5% in the fourth month. If AR for July is $598,000, what amount of cash do they expect to collect in October? " a. $281,060 b. $59,800 c. $179,400 d. $47,840

b. $59,800 (598,000 x 10% = 59,800)

Which validation method tests a forecast using data that were not used to develop it, i.e., using 30 months of data for the forecast and the last 6 months of a three-year period to test? a. In-sample validation b. Out-of-sample validation c. Ongoing validation d. Documentation of the process

b. Out-of-sample validation

An analyst for a landscaping company wants to adjust her cash-flow forecast to account for the seasonality of outflows. How can this be accomplished? a. Simple moving average b. Regression analysis c. Accounts receivable balance pattern d. Contingency forecasting

b. Regression analysis

Which is a step in arriving at the projected closing cash position a. Start with the next period's closing available bank balance b. Deduct the expected settlement sin collection and concentration accounts c. Deduct projected disbursement totals d. Find historical data on clearing of disbursements from non-controlled disbursement accounts

c. Deduct projected disbursement totals

"The treasury manager of a chain of clothing stores wants to develop a medium-term forecast. Management plans to open two new stores, and anticipates same-store sales to increase by 15%. Which of the following items can be predicted with the highest degree of certainty? " a. Taxes on stock options b. New product sales c. Fixed bond interest payment d. Refranchising proceeds

c. Fixed bond interest payment

"A daily short-term forecast and variance analysis for LMN, Inc. is updated with relevant trends and actual data every Monday. Upon review, the treasurer assessed that sales were higher than forecasted, inventory was up and yields being earned on excess cash were lower. The MOST important reason for this cash forecast process is: " a. Financial control b. Managing costs c. Capital budgeting d. Liquidity management

d. Liquidity management

The items listed below are some of the best practices in cash forecasting. What is another of these practices? -Use appropriate detail - Use appropriate platform - Invest the appropriate amount of resources - Validate the forecast - Cooperate and communicate - Ensure the forecast is usable a. If a sophisticated treasury forecasting system exists, use it for all forecasts b. Allow each business unit to develop terminology and expectations c. Accuracy is always more important than timeliness f. Disclose assumptions

f. Disclose assumptions

Identify the following forecasting horizons Used as a benchmark to compare actual to projected cash flows on the cash budget

medium-term