Total cash management: a company-wide system for forecasting, managing, and improving cash flow

Global changes in the operating conditions of non-state corporate structures, caused by the forced vacation in the spring of 2020, caused a sharp reduction in cash receipts and sharpened the attention of financiers to determine the future values of receipts, Disposals and cash balances. The author of the article has proved what types of economic and professional interests of the main three groups of users of financial and economic information-owners, top managers and financiers- are associated with the interest in obtaining high-quality information about the future values of cash flows of non-state corporate structures. The article explains why it is appropriate to use the term forecasting rather than planning in relation to predicting the future value of indicators that characterize cash flows. In addition, referring to the opinion of well-known foreign scientists and financial practitioners, the author provides arguments in favor of the fact that forecasting cash flows, rather than profit, is of paramount importance in modern conditions. The author’s definition of the cash flow forecast is given, revealing its content in the following projections: as a result of the process, as a document, as a set of methodological techniques and as a source of information for management decisions. The author conducted a study of theoretically developed and applied in practice methods of forecasting cash flows. In the results, the author systematized by application areas, and briefly described the mechanism for applying the main methods of forecasting cash flows that can be used for modern corporate structures. In particular, the use of the situational analysis method, expert assessment method, and the method of processing spatial, temporal, and spatio-temporal aggregates, as well as methods based on their combination and common in modern financial practice, such as forecasting cash flows based on proportional dependencies, was considered; budgeting of cash flows based on the technology of budgeting and cash flow design based on simulating a set of planned business operations on the used versions of accounting programs. In conclusion, the author concludes that there is no ideal method for forecasting cash flows and the need to take into account the information interests of users, the complexity of application, the availability of high-quality information and compliance with the management culture of the corporate structure in which forecasting is performed.

Analysts' Cash Flow Forecasts and the Predictive Ability and Pricing of Operating Cash Flows

Avoiding Distortion in Corporate Valuation Litigation: An Application of Discounted Cash Flow

ABSTRACT: We characterize the operating-activities section of the indirect-approach statement of cash flows as backward because it presents reconciling adjustments in a way that is opposite from the intuitively appealing, future-oriented, Conceptual Framework definitions of assets, liabilities, and the accruals process. We propose that the reversed-accruals orientation required in the currently mandated indirect-approach statement of cash flows is unnecessarily complex, causing information-processing problems that result in increased cash flow forecast error and dispersion. We also predict that the mixed pattern (i.e., +/−, −/+) of operating cash flows and operating accruals reported by most companies impedes investors’ ability to learn the time-series properties of cash flows and accruals. We conduct a carefully controlled experiment and find that (1) cash flow forecasts have lower forecast error and dispersion when the indirect-approach statement of cash flows starts with operating cash flows and adds changes in accruals to arrive at net income and (2) cash flow forecasts have lower forecast error and dispersion when the cash flows and accruals are of the same sign (i.e., +/+, −/−); with the sign-based difference attenuated in the forward-oriented statement of cash flows. We also conduct a quasi-experiment to test our mixed-sign versus same-sign hypotheses using archival samples of publicly available I/B/E/S and Value Line cash flow forecasts. We find that the passively observed samples of cash flow forecasts exhibit a similar pattern of mixed-sign versus same-sign forecast error as documented in our experiment.

Do Analysts’ Cash Flow Forecasts Encourage Managers to Enhance Real Cash Flows? Evidence from Tax Planning

An Empirical Analysis of Analysts' Cash Flow Forecasts

Cash flow is an important aspect of company finances which reflects the company's financial health and ability to fulfill its financial obligations. Cash flow statements allow stakeholders to understand how cash flows are generated and used in a given period. This research aims to gain an in-depth understanding of cash flow management, financial innovation, risk management, and modern business practices. Through a qualitative approach with literature studies, this research explains various aspects related to cash flow, starting from definitions, classifications, and problems that may occur, to the analysis techniques used. There are three main categories in the cash flow report, namely operating, investing, and financing activities. Cash flow problems can occur in the form of a deficit, break-even, or surplus. Cash flow analysis includes various ratios that measure a company's financial performance, such as operating cash flow/net sales, free cash flow, and other ratios. The results and discussion highlight the cash flow analysis techniques used, such as the calculation of operating cash flow/net sales and free cash flow, as well as various ratios that measure a company's financial performance. This research concludes that cash flow analysis is an important key in understanding company finances and making better strategic decisions. Cash flow statements help identify potential financial problems and ensure the long-term continuity of a company's operations. As suggestions for future research, this study suggests exploring the impact of technology in cash flow management, the influence of financial innovation on cash flow, risk management strategies, dividend policies, best practices in cash flow management, comparison of methods for preparing cash flow reports, the influence of tax policy, and the impact of CSR on cash flow.

We examine the sophistication of analysts' cash flow forecasts to better understand what accrual adjustments, if any, analysts make when forecasting cash flows. As a preliminary step, we first demonstrate that prior empirical tests used to evaluate the sophistication of analysts' cash flow forecasts are not diagnostic. We then present three sets of evidence to triangulate our conclusion that analysts' cash flow forecasts incorporate meaningful accrual adjustments. First, we review a stratified random sample of 90 analyst reports and find that the majority of these analysts include explicit adjustments for working capital and other accruals in their cash flow forecasts. Second, using a large sample of analysts' cash flow forecasts from 1993–2008, we find that these forecasts outperform time‐series cash flow forecasts in correctly predicting the sign and magnitude of accruals. Finally, we find a significant market reaction to analysts' cash flow forecast revisions, suggesting that investors find these revisions informative. Collectively, our findings demonstrate that analysts' cash flow forecasts are not simply naïve extensions of their own earnings forecasts, but that they reflect meaningful and useful accrual adjustments. These findings are relevant to researchers who examine analysts' cash flow forecasts in a variety of settings, and to investors and practitioners who employ these forecasts for valuation purposes.

Are Analysts’ Cash Flow Forecasts Naive Extensions of Their Own Earnings Forecasts?

We examine whether the provision of managerial cash flow forecasts is a significant predictor of analysts’ decision to cover a firm with cash flow forecasts. Unlike managerial earnings forecasts, which are often issued to walk down analyst earnings estimates, managers issue cash flow forecasts to counter bad earnings news and lessen the cost of investor and analyst information acquisition (Wasley & Wu, 2006). Motivated by the increasing popularity of managerial cash flow forecasts and prior empirical evidence that analysts are less likely to follow a firm for which the costs of acquiring financial information are prohibitive (e.g., Liu, 2011), we predict and find that the provision of managerial cash flow forecasts is a significant determinant of the likelihood of analyst cash flow coverage. We also find that analysts are less likely to issue cash flow forecasts when the effort necessary to follow a firm is high. Together, the evidence suggests that the existence of management cash flow forecasts is an important determinant of analysts’ cash flow coverage.

PurposeThis study investigates whether financial analysts process information efficiently when they make cash flow forecasts.Design/methodology/approachUsing a sample of 3,967 observations spanning 2004–2016, we perform empirical analyses by regressing actual cash flows on previous cash flow forecasts for the current period and a vector of information variables known to the analysts at the time of the forecasts.FindingsWe find that analysts do not incorporate past stock returns or past cash flow information efficiently when they generate cash flow forecasts. We also find weak evidence that analysts do not incorporate past consensus cash flow forecasts or past accruals information when they generate cash flow forecasts.Practical implicationsOur findings contribute to the analyst forecast efficiency literature and highlight the difference between analyst cash flow forecast efficiency and earnings forecast efficiency.Originality/valueWhile extant research on whether analysts use publicly available information efficiently when generating earnings forecasts documents mixed findings (e.g. DeBondt and Thaler, 1990; Abarbanell and Bernard, 1992; Basu and Markov, 2004; Evans et al., 2017), our results regarding analysts’ cash flow forecast efficiency are unambiguous.

Cross-Sectional Determinants of the Impact of Management Cash Flow Forecasts

Working capital management has very importance for sustaining profit and operating efficiency of industries like fast-moving consumer goods as well as agribusiness. The challenge being faced by the major conglomerate in India, ITC Limited, is actually balancing the liquidity need with growth momentum across its diversified business segments like FMCG, agribusiness, hospitality, and paperboards. It discusses the relationship of ITC WCM practices with profitability and explains how ITC manages crucial working capital items such as inventory, receivables, and payables to give liquidity support and long-term growth.Using data from various liquidity and efficiency ratios, including Current Ratio, Acid test Ratio, Inventory Turnover Ratio, Receivables Turnover Ratio, Payables Turnover Ratio, Cash Ratio, and Cash Conversion Cycle (CCC), the study looked at the ITC's data. With information on the exact strategies pursued by ITC under WCM through supplementing data from ITC's financial reports with some custom calculations in Excel, the study explains the outcomes of such performance measures.The results also indicate that WCM practices under ITC are vital to the financial solidity of the firm and contribute significantly to its responsiveness to economic shocks. The Current Ratio and Quick Ratio of ITC are ever depicting a high liquidity of the firm, facilitating the company to service short-term obligations and reduce uncertainty in the marketplace. ITC's Inventory Turnover Ratio seems to portray intelligent management of stock. Digital transformation helps make responsive adjustments in inventory levels based on demand. Better inventory management practices can reduce holding costs, improve cash flow, and streamline supply chain operations for better profitability. In addition, the Receivables Turnover Ratio of ITC suggests that the company concentrates on faster collection cycles, which supports liquidity and therefore minimizes cash flow constraints. Making use of digital tools and defining credit management policies, ITC has been accelerating the collection cycle process, which enables it to reduce dependence on external funding avenues and provide agility in terms of a cash flow cycle. A Payables Turnover Ratio reflects the company's approach on cash outlays from a strategic and tactical point of view. ITC can manage timely payments to suppliers while looking for opportunities to extend periods of cash retention. The cash balance is hence strengthened without impacting supplier relations.The Cash Conversion Cycle, another imperative variable of this study, is an expression of the efficiency with which the working capital of ITC can be converted into cash. The CCC captures to what extent ITC's strategy of managing inventory, receivables, and payables is translated in taking cash cycle ahead in accelerated ways that reduce time lapse, thus making cash coming from core operations. Optimized cash flow at ITC then enables it to channel cash returns to profitable activities toward growth and innovation.In summary, the above research emphasizes how ITC's WCM strategies have constantly been a source of profitability by enhancing cash flows that facilitate healthy financial operations over long-term periods. Digital tool integration and adoption of the sustainable data-driven approach have helped ITC in gaining a competitive edge in its diversified business streams. This research highlights that agile WCM is important for resilience and profitability in the FMCG industry: such research clarifies value maximization through liquidity optimization from companies navigating market dynamics.

This article examines factors affecting the accuracy of cash flow forecasts issued by financial analysts. Consistent with previous findings on earnings forecast accuracy, analyst and forecast characteristics—including cash flow forecasting frequency, cash flow forecasting experience, the number of companies followed, forecast horizon, and past cash flow forecasting performance—determine cash flow forecast accuracy. The authors find that forecasting cash flows is distinct from forecasting earnings. Compared with earnings forecasting experience and past earnings forecast accuracy, cash flow–specific forecasting experience and past cash flow accuracy better explain current cash flow forecast accuracy. The authors also find that individual cash flow forecasts are unlikely to be naïve extensions of earnings forecasts. Investors may utilize the present findings to identify more accurate cash flow forecasters.

This paper examines cash flow management in the Chinese market and compares it to that in the U.S. market. It adopts Burgstahler and Dichev (1997) and Degeorge et al.’s (1999) method and the best-fitted distribution model to analyze the financial data of Chinese listed firms during 1998–2005 and the forecasted cash flow per share (CPS) data for Chinese firms in the I/B/E/S database during 1993–2005. Results reveal that cash flows reports are not as reliable as people think, and managers manipulate cash flows just as they manipulate earnings. Further analyses show that zero point, last year’s cash flow and analyst cash flow forecast are the three thresholds that influence managers’ decision when they report cash flow performance. Over 16% of the firms with small positive cash flows manipulate their cash flow. Moreover, 16.64% of the firms with small changes in cash flow and 9.81% of the firms with small surprises manipulate cash flows to reach the targets. A comparative analysis shows that cash flow management behaviors around zero and zero changes are more prevalent in the Chinese market than in the U.S. market. Cash flow management around analyst cash flow forecasts, however, is no more prevalent than that in the U.S. market.