Cash Flow Forecasts Research Articles

An investment decision dilemma

Subject area Financial Accounting and Corporate Finance. Study level/applicability Undergraduate, Post Graduate and Executive Education. Case overview T.A. Pai Management Institute (TAPMI), a leading B School in South India had established its new campus in Badagabettu village, about 5 km away from Manipal, Udupi District, Karnataka. Though the campus housed about a thousand inmates, comprising students, staff and faculty members, a proper public transport system did not develop commensurate with other facilities. The TAPMI administration was flooded with requests from various stakeholders to find a solution to this vexed problem. The Dean Administration had three options before him namely convincing the existing private bus operator to run a new bus en route TAPMI, TAPMI purchases the bus by either paying cash or availing loan from a bank or TAPMI can take a bus on lease. The predicament before Dean was to find out the most economically viable solution. Expected learning outcomes At the end of this case discussion, the participants will be able to: understand the application of breakeven analysis; prepare income statement, balance sheet, cash flow statement and forecast of cash flows; evaluate financing and investing decisions by using various techniques; discuss and debate the different alternatives available to the organization. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CSS 1: Accounting and Finance.

Implications Of Cash Flow Forecasting On Highway Projects In Iraq

The cash flow forecasting is beneficial for the project in both the tender stage and during the project construction progress, where the contractors want to make sure that their planned cash funds is sufficient to cover any possible financial deficit of the project. This research aims to find out minimum fund needed for highway projects in Iraq required by the contractor to maintain the progress of work under some circumstances and effects of the shortage of fund, particularly in case of payment delay, in addition to the implication of the payment delay. Data from record files of 9 highway projects in Iraq, of the unit price type contracts. It was found that the minimum fund required is 20.944 percent of the contract value of three months delay . The minimum fund required for those projects is directly proportional to the time of payment delay. The minimum fund required for projects is represented in a linear equation as a function of payment delay time, such equation would help the contractor to estimate the future amount of minimum fund required for any delay in months. Interim profit is calculated for the purpose of comparison with the expected profit for the purpose of exploring the consequences in case exceedance. Because of the use of unit price contracts in the implementation of highway projects in Iraq, it did not cause the appearance that the contractor receives large profit at early stages of the project. The delay in payment leads to negative results, including the delay in the project, reduces the level of performance of the contractor which is negatively affects project, reduce the quality of implementation and, increased cost of the project in case of the contractor to claim compensation for the damage, as well as the occurrence of a difference in currency and inflation due to the time difference between the payment date and the actual date.

다양한 학습곡선을 반영하는 시그모이드 함수 기반 진도관리 시뮬레이션 모델

Sigmoid modeling method, one of the widely used learning curve modeling methods, has its limits in implementing construction project cash flows, because it generates learning curve with just one single complicated formula. Therefore it needs to be developed to cope with practical situations - where many factors affect the shape of learning curves. This study adopts system dynamics modeling method to simulate S-shaped learning curves. The simulation model was constructed to apply various factors in modeling learning curves. It introduced several factors such as initial delay variance, cost variance, target date, productivity variance and these factors enable the simulation model to apply various situations of construction projects, such as schedule delay, cost increase, lagging work speed. While conventional sigmoid curve modelling is difficult to reflect changes in the middle of the project, the proposed model allows variable adjustment any time of the project progression. Statistical evaluation showed that it is 955 confident that the simulated result of the proposed model matches conventional sigmoid curve. It can be used for finding appropriate daily productivity by comparing the learning curves of target duration and actual duration, and can also be helpful forecasting cash flow features for S-shaped learning curve model.

Do Analysts Strategically Employ Cash Flow Forecast Revisions to Offset Negative Earnings Forecast Revisions?

We investigate whether analysts use cash flow forecasts to reduce the impact of earnings forecast revisions (EFRs) on market participants. In particular, we focus on conflict between an analyst's concurrent cash flow and earnings forecast revisions. We hypothesize and find that analysts are more likely to issue a positive cash flow forecast revision when they issue a negative earnings forecast revision concurrently, but not the opposite, particularly for Fortune 500 firms. Furthermore, our supplementary analyses suggest that (1) some analysts optimistically bias cash flow forecasts when they issue negative earnings forecast revisions; (2) the market pays less attention to the historical accuracy of analyst cash flow forecasts, so analysts have some latitude to present their cash flow forecasts in an optimistic way; and (3) the market reacts mainly to the direction, not the magnitude, of cash flow forecast revisions. Overall, these findings suggest that analysts may strategically use cash flow forecasts in conjunction with earnings forecasts to maintain good management relationships.

Do voluntary cash flow disclosures and forecasts matter to value of the firms?

Purpose – Two stylized facts emerge from cash flow literature. One explores the link between free cash flow (FCF) to firm value (Jensen, 1986) and establishes that FCF increases firm value. The other posits FCF may be value decreasing as firms tend to over invest when there is high level of FCF (Richardson, 2006). Two camps have opposing views yet together they establish that FCF is value relevant. If FCF or cash flow, in general, is value relevant then managers will be motivated to present forecasts to investors. The paper aims to discuss these issues. Design/methodology/approach – The authors hand collect data from each firm’s press releases and earnings announcements and perform an event study around this date to see how firm forecast and disclosure policies affect firm value. Findings – The analysis demonstrates that disclosures and forecasts do have significantly positive relation with tech firms suggesting that firms in the technology industries are more forthcoming with cash flow disclosures and forecasts in their earnings announcements. The authors further show that these disclosures and forecasts negatively affect the firm value of tech firms. Originality/value – This paper contributes to the literature that there is empirical evidence that cash flow disclosures and forecasts matter to the value of the firm. Further, it posits that unlike understanding the existing views as opposing each other, may be the authors will be better served if they view both of them as right depending on the optimality of forecasts. The future efforts will be directed toward exploring the optimality of cash flow disclosures.

ПРОГНОЗУВАННЯ ОБСЯГІВ ПРОДАЖУ ТА ГРОШОВИХ ПОТОКІВ ПІДПРИЄМСТВА: ПРИКЛАДНИЙ АСПЕКТ

Making decision concerning the usage of autoregressive models during the forecast is grounded and its advantages are considered, other methods and forecasting models are compared. Assessment of the companies sales dynamics for all ten years (2005—2014) is made. The estimation of sales and cash flows of the company with a lag is given. The values of the regression coefficients between the rows and rows of a lag of one year is calculated. The estimation of sales and cash flows of the AR enterprise model is done. Indicators accuracy assess and adequacy of the forecast is obtained which became the basis for building sales forecast cash flow of the enterprise in the 2015—2016 year. It was found that the forecast of economic indicators is influencing on reaction accelerate as to the changes in the external environment and as consequence timely containment of economic falling levels effect, definition of financial resources real possibility, the sources of their formation and the ways of their use. REFERENCES Balabanov I.T. Osnovy finansovogo menedzhmenta : Uchebn. posobie. M. : Finansy i statistika, 2000. 527 p. Yerina A.M. Statystychne modeliuvannia ta prohnozuvannia: Navch. posib. K. : KNEU, 2001. 170 p. Mochernyi S.V. Ekonomichna entsyklopediia: u 3 tomakh. T.1. K. : Akademiia, 2000. 864 p. Stelmashchuk A.M. Derzhavne rehuliuvannia ekonomiky : navchalnyi posibnyk. Ternopil : TANH, 2000. 315 p. Dreval O.Iu. Planuvannia diialnosti pidpryiemstva : konspekt lektsii. Uklad. O.Iu. Dreval. Sumy : Vyd-vo SumDU, 2008. 146 p. Hrabovetskyi B.Ie. Teoretychni i metodolohichni osnovy ekonomichnoho prohnozuvannia : navch. posib. Osnovy ekonomichnoho prohnozuvannia.  Vinnytsia : VF TANH, 2000. URL: http://pulib.if.ua/part/9816

Evaluation of ATM Cash Demand Process Factors Applied for Forecasting with CI Models

The purpose of cash management is to optimize distribution of cash. Effective cash management brings savings to retail banks that are related to: dormant cash reduction; reduced replenishment costs; decrease of cash preparation costs; reduction of cash insurance costs. Optimization of cash distribution for retail banking in ATM and branch networks requires estimation of cash demand/supply in the future. This estimation determines overall cash management efficiency: accurate cash demand estimation reduces bank overall costs. In order to estimate cash demand in the future, cash flow forecasting must be performed that is usually based on historical cash point (ATM or branch) cash flow data. Many factors that are uncertain and may change in time influence cash supply/demand process for cash point. These may change throughout cash points and are related to location, climate, holiday, celebration day and special event (such as salary days and sale of nearby supermarket) factors. Some factors affect cash demand periodically. Periodical factors form various seasonality in cash flow process: daily (related to intraday factors throughout the day), weekly (mostly related to weekend effects), monthly (related to payday) and yearly (related to climate seasons, tourist and student arrivals, periodical celebration days such as New Year) seasons. Uncertain (aperiodic) factors are mostly related to celebration days that do not occur periodically (such as Easter), structural break factors that form long term or permanent cash flow shift (new shopping mall near cash point, shift of working hours) and some may be temporal (reconstruction of nearby building that restricts cash point reachability). Those factors form cash flow process that contains linear or nonlinear trend, mixtures of various seasonal components (intraday, weekly, monthly yearly), level shifts and heteroscedastic uncertainty. So historical data-based forecasting models need to be able to approximate historical cash demand process as accurately as possible properly evaluating these factors and perform forecasting of cash flow in the future based on estimated empirical relationship.

Solvency, Indebtedness, Rates of Return and Investment Impact on Economic and Technical Analysis Indicators (Case Study)

Abstract The purpose of the performed and presented financial analyzes, in the case of the two units, does not allow major discrepancies between the estimated and achieved situation. The authors have based the research on the technical-economic and financial analysis of investments, which sets economic efficiency and investments viability and assumes forecast of revenue, expenses, profit and loss account, balance sheet and cash flow: a) static analysis of indicators; b) dynamic analysis of indicators, c) cost-benefit analysis. Analysis of economic efficiency and sustainability of investments aimes at both static indicators of investment analysis and dynamic analysis of economic efficiency. The goal of research was to improve analyzes and economic indicators for assessing the effectiveness and sustainability of investments and the objectives targeted technical and economic analysis, solvency and viability of investments and the impact of the investment on key indicators of economic and financial technical analysis. Case studies, carried out at S.C. NORD INTERMED CONSULTING GROUP S.R.L. Dorneşti, Suceava county and S.C. ANDIMIR TOP S.R.L. Mihălăşeni, Botoşani county, led to a series of measures to improve the financial analysis of economic efficiency and sustainability of investments.

A study on the algorithm of cash flow forecasting model in the planning stage of a construction project

Recently, due to the global liquidity crisis, construction companies are in bad condition financially. However, by monitoring their cash flows and setting up measures to avoid a liquidity crisis, in a proactive and timely manner, construction companies can manage themselves out of the crisis. This study suggests an algorithm of modeling future cash flow, to be used in the planning stages of projects of construction companies, in order to effectively manage liquidity. Also an algorithm which calculates the optimal cash level by considering elements such as time lags, cost categories and the weights of the cost categories to earned value and budget in the planning stage of a construction project. The algorithm also suggests a forecast of cash flow by comparing the variables of cash-in and cash-out, the output of which is derived through simulations made between such elements as billing time and time lag. Case studies regarding the application of the cash flow forecasting algorithm are also presented. This paper aims to provide a solution for any expected liquidity problems and the implementation of a measure to forecast an adequate cash flow level for construction companies.

What Determines Managers' Perceptions of Cash Flow Forecasting Quality? Evidence From a Multinational Corporation

In this article, we develop and test a model of the determinants of managers' perceptions of cash flow forecasting quality in nonfinancial companies. We expect and find that managers' perceptions of the quality of cash flow forecasts are determined by the perceived quality of the input data, the effort invested in forecasting, and the efficiency of the related processes, and ultimately by a company's orientation toward financial goals. Our empirical analysis is based on data from a worldwide questionnaire survey at a multinational industrial company. While we find that managers assess forecasting effort lower and forecasting efficiency higher for direct cash flow forecasting than for indirect method forecasting, our analyses reveal that the variables in our model, the postulated relationships between them, and the estimated effect sizes are equally valid for both forecasting methods.

Valuation of Index-Linked Cash Flows in a Heath–Jarrow–Morton Framework

In this paper, we study the valuation of stochastic cash flows that exhibit dependence on interest rates. We focus on insurance liability cash flows linked to an index, such as a consumer price index or wage index, where changes in the index value can be partially understood in terms of changes in the term structure of interest rates. Insurance liability cash flows that are not explicitly linked to an index may still be valued in our framework by interpreting index returns as so-called claims inflation, i.e., an increase in claims cost per sold insurance contract. We focus primarily on the case when a deep and liquid market for index-linked contracts is absent or when the market price data are unreliable. Firstly, we present an approach for assigning a monetary value to a stochastic cash flow that does not require full knowledge of the joint dynamics of the cash flow and the term structure of interest rates. Secondly, we investigate in detail model selection, estimation and validation in a Heath–Jarrow–Morton framework. Finally, we analyze the effects of model uncertainty on the valuation of the cash flows and how forecasts of cash flows and interest rates translate into model parameters and affect the valuation.

Evidence on Analyst Stock Recommendations, Cash Flow Valuations, and Stock Return Profitability

This paper examines whether analysts’ stock recommendations are informed by their cash flow forecasts, and whether these recommendations and cash flow forecasts provide investors with useful information to identify mispriced securities. In doing so, the paper contributes to the ongoing debate regarding the sophistication and value of analysts’ cash flow forecasts. Our findings show that analysts’ stock recommendations are informed by their cash flow forecasts when their forecasts are used in simple cash flow valuation heuristics. However, using these recommendations and heuristics to identify mispricing fails to earn investors excess returns. In contrast, we show that buy-and-hold investors earn significant excess returns by identifying mispricing using analysts’ cash flow forecasts in a discounted valuation model. Overall, we provide the first empirical evidence to suggest that, while analysts apparently fail to use their cash flow forecasts in a sophisticated valuation model, investors can use these forecasts in this manner to identify mispriced securities to earn significant excess returns.

An 'Enhanced' Corporate Valuation Model: Theory and Empirical Tests

In this paper, we develop an enhanced corporate valuation model based on the implied cost of equity capital (ICC). We argue that the enhanced approach extends the standard market multiples and discounted cash flow (DCF) approaches to corporate valuation. Specifically, it incorporates positive aspects of the market comparables and DCF approaches while mitigating the shortcomings of both. Unlike the traditional market comparables approach, the enhanced approach takes account of the full term structure of earnings forecasts. It does so by using the ICC calculated for the comparable companies as an “enhanced multiple” which translates the entire stream of cash flow forecasts into a value estimate. Unlike the DCF approach it does not require estimation of the cost of equity capital. As such, it avoids the complexity and uncertainty associated with estimating the cost of equity capital. In our empirical tests, we find the enhanced approach to be more accurate than either of the two traditional approaches.

Do Firms Manage Reported Cash Flow? An Examination of Temporary Fourth Quarter Working Capital Decreases

Working capital is an important indicator of firm operational efficiency. All else equal, lower levels signal greater efficiency. As such, managers are likely to be motivated to report lower levels of working capital at times of greater external attention to its levels. This study provides evidence that working capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. We find that firms manage down year-end working capital through transactions that increase year-end operating cash flow and that firms spread this activity over all working capital major accounts. Finally, the temporary decrease in year-end working capital is correlated with compensation benchmarks and annual analysts’ cash-flow forecasts. The temporary drop is also more pronounced for firms with industry dominance.

How Does Value Grow? Chasing Short-Term Income Destroys Long-Term Value

On what does growth in value primarily depend? Is it the magnitude of forecast cash flow, the growth in forecast cash flow, discount rates, or some combination? This article answers these questions. Additionally, the author develops a generalized discounted cash flow (GDCF) model, in which the standard discounted cash flow becomes a special case. The GDCF consists of a single formula for valuing a business. Finally, the author provides recommendations for management of the business that will increase growth in value the most.

Relevance of Goodwill Impairments to Cash Flow Prediction and Forecasting

This study examines the contribution of goodwill impairment information to the prediction and forecasting of future operating cash flows. Extending the framework of Barth, Cram, and Nelson, we find that explicitly including goodwill impairments incrementally improves 1-year-ahead cash flow prediction and forecasting. Improved cash flow forecasting is present over the entire 2001-2009 study period as well as for each year within the study window. In addition, goodwill impairments retain their significance and predictive power when other non-recurring charges (e.g., restructuring, asset write-downs, and merger and acquisition costs) are added to the model, both individually and aggregately, and when market-related information (i.e., change in market capitalization) is included in the model. While these findings are validated by in-sample prediction techniques, this study is also one of only a few studies to investigate the incremental, out-of-sample predictive power of non-current accruals on reported (as opposed to computed) operating cash flows. Analysts, investors, creditors, and others interested in future cash flows should separately consider goodwill impairment information, when available, to improve the accuracy of cash flow prediction and forecasting.

Bond Analysts' Forecasts on Cash Flows and Earnings

We examine the propensity and properties of bond analysts’ forecasts on cash flows and earnings. We find that the probability to issue cash flow, relative to earnings, forecasts is greater for bond analysts than for equity analysts, consistent with the notion that cash flow, relative to earnings, information is more important to bond investors than for stock investors. In addition, bond analysts’ cash flow (earnings) forecasts are more (less) accurate than equity analysts’ cash flow (earnings) forecasts. Finally, we show that bond investors’ reaction to bond analysts’ cash flow forecast revision is greater than that to bond analysts’ earnings forecast and that bond market reacts only to bond analysts’ forecast revisions but not to equity analysts’ forecast revisions. This manifests bond investors’ stronger demand for reliable information on future cash flows than for earnings. Overall, this study enhances our understanding of bond analysts’ informational role through their forecasting activities.

CASH FLOW PREDICTION FOR CONSTRUCTION PROJECT USING A NOVEL ADAPTIVE TIME-DEPENDENT LEAST SQUARES SUPPORT VECTOR MACHINE INFERENCE MODEL

Cash flow information is crucial for the decision making process in construction management. Due to the complexity and the dynamic progress of a construction project, forecasting cash flow demand throughout various phases of the project remains a challenging problem. This article presents a novel inference model, named as Adaptive Timedependent Least Squares Support Vector Machine (LS-SVMAT) for cash flow prediction. In the LS-SVMAT, Least Squares Support Vector Machine (LS-SVM) is integrated with an adaptive time function (ATF) to generalize the inputoutput mapping of cash flow. Since cash flow data are time-dependent, data points recorded in different periods can contribute dissimilarly to the training process of the prediction model. Thus, the role of the ATF is to determine the appropriate weight associated with each data point at a specific time period. By doing so, LS-SVMAT can better deal with the dynamic nature of the time series. Furthermore, to identify the optimal parameters for the inference model, Differential Evolution (DE) based cross validation process is utilized in this research. Comparing to other benchmark methods, the proposed model has identified the most appropriate time function and has yielded superior forecasting results. Therefore, LS-SVMAT can be a promising tool for construction managers in cash flow prediction.

Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control

AbstractWe examine the economic impact of analysts’ cash flow forecasts by looking at how external auditors respond to financial analysts’ issuance of cash flow forecasts. Using a differences‐in‐differences approach, we find that financial analysts’ initiation of cash flow forecasts leads to reduced auditor fees and audit report lags. Moreover, after cash flow forecast initiation, firms report fewer Section 404(b) internal control weakness disclosures. These findings suggest that cash flow forecasts constrain earnings manipulation and improve management accounting behavior, thereby reducing inherent and control risk and strengthening firms’ internal control over financial reporting.

Cash Flow Forecasting as an Element of Integrated Reporting: An Empirical Study

The article is devoted to the practical aspects of integrated reporting cash flow forecasts. The proposed formationmethod is based on the fuzzy logics and the procedure of expert evaluations.As the result of a premade theoretical analysis of integrated reporting, an algorithm for cash flow forecasting hasbeen developed. Additionally, an example of practical application of the covered method based on integratedreporting data of JSC Nizhnekamskneftekhim has been included.