Practical example of cash flow forecast techniques

Cash flow forecasting is a vital function of financial planning.

Taking in elements of accounts receivable, accounts payable and ensuring companies liquidity it forms the basis of good financial management.

There are two main schools of cash flow forecasting.

  1. Direct
  2. Indirect

For most general purposes a combination of both is needed to ensure short to medium term cash flow forecasts.

In this example we will take a combination of the R&D (Direct) and ANI (Indirect) methods.

R&D is an acronym that refers to receipts and disbursements.

A receipt is anything that the company receives cash from, things such as accounts receivable from sales, income from the sale of assets and the proceeds of financing (for example loans).

A disbursement is any cash that leaves the company, refunds, accounts payable, wages, dividends or repayment of financing.

By correctly predicting the income vs out-going of the company the aim is to correctly predict liquidity issues which can be then solved using financing or other methods.

The link below will give you a number of templates that allow you adapt the above R&D method for your own use.


The R&D method allows for excellent short term planning but it can fall short when allowing for medium or long term planing to include year end taxation issues or large accruals.

To circumvent this a second method should be used. In this instance we will use the ANI example of a cash flow forecast.

ANI stands for Adjusted Net Income and it is very like the R&D method except that the operating income before interest, taxation, deductions and amortisation is also subjected to inventory deductions to predict long term cash flow.



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