Showing papers on "Cash flow forecasting published in 1975"

How Widely are Cash Management Optimization Models Used

Abstract: Over the last ten years more than twenty optimization models for short-term cash management have been proposed in the professional journals in OR, finance, and economics. Short-term cash management is here defined as those activities of top or middle management executives connected with the periodic daily or weekly review and control of cash balances, short-term loan balances and short-term marketable security holdings. The objective is to maintain adequate cash balances to meet future disbursements, i.e., eliminate idle cash balances e.g., by reducing short-term loans or buying treasury bills or cover potential cash shortages e.g., by selling treasury bills or increasing short-term loans.

A Rule-of-Thumb Theory of Cash Holdings by Firms

Abstract: Models developed to explain variations in cash balances of firms have generally postulated forms of rational choice for the decision maker. Two examples of these kinds of models are (1) Baumol's inventory-type model where the choice of the initial balance is made in terms of a planning period in which outflows of cash, but no inflows, are considered; (2) Miller and Orr's model wherein inflows and outflows occur randomly and a decision is triggered to increase or reduce cash balances when an upper or lower threshold is passed. Statistical tests of the inventory-type model have had limited success, particularly in attempts to identify the increasing efficiency in the use of cash balances as a function of the size of the firm. The apparent linear double logarithmic relationship between cash balances of firms and their sales volumes has cast doubt upon the increased efficiency proposition that derives from the Baumol model. Meltzer has modified this model to demonstrate that it implies linearity. The Meltzer tests will be challenged in this paper, and we shall establish that his results, as well as Baumol's conclusions, are particular outcomes that can be better explained in another type of model.

On the Accuracy and Formation of Life Insurance Company Cash Flow Forecasts

Abstract: Since 1957, the Life Insurance Association of America (LIAA) has conducted quarterly cash flow surveys in which the reporting life insurance companies are requested to present, in addition to current figures, forecasts of cash flow' by individual component for each of the succeeding two quarters. The major components identified in these surveys, plus a measure of their contribution in the aggregate2 to total cash flow, are presented in table 1. The purpose of this paper is to examine the accuracy of these recorded cash flow forecasts as well as the mechanism by which they were formed. These issues are important in view of the central role assigned to cash flow forecasts in the life insurance company investment process.3 The paper focuses on the six components of cash flow which are exogenous to life insurance companies, those designated by an asterisk in table 1.

An Analysis of Voluntary Cash Demands on Life Insurance Companies

Abstract: This study measures the voluntary cash demand exposure and voluntary cash demand usage for nineteen selected life companies for the period 1960-1970. The findings show that while exposure to cash demand did not increase over the period, there was increased usage by policyowners. They study reveals that company groups experienced very distinct patterns of usage of policy loan rights, surrenders, and dividend withdrawals. Insurer response to liquidity strains was also particular to the company and ranged from borrowing to mortgage warehousing, deferrals of mortgages and securities, and forced sales of stocks and bonds. Life insurance companies are subject to two types of cash demands which may be differentiated by the manner in which the demand is initiated. Involuntary cash outflows arise from the natural process of the life contract and include items such as commissions and death benefits, which are highly predictable. Voluntary cash outflows are initiated by the policyowner or beneficiary and include policy loans and withdrawals of surrender values, accumulated dividends, annuity values, and supplementary contracts. Because these demands occur at the discretion of the policyowner, they tend to be highly unpredictable. The literature indicates that cash flows are stable and predictable in life companies. Typical of this view is the following comment: To sum up, the cash flow position of life companies is so stable and predictable that a natural built-in liquidity is provided. . . This natural liquidity has been able to withstand emergency demands for cash with remarkably little strain. . . . It can be said that the precautionary motive for liquidity hardly exists for assurance companies.'

Building Construction Management Game

Abstract: A computerized project management game has been developed to assist in understanding and teaching the economic and managerial problems of urban building development. In this game, players form teams, and make all decisions regarding building financing and construction; the response of the urban environment to all decisions is simulated by the computer system. Each team decides the type of project to build (commercial office buildings, high-rise apartments, moderate-income apartments, or shopping centers), its size, and its location in the simulated city. The computer game stresses the importance of financial planning, cash flow management, team organization, procurement and use of information, interaction with competing teams, and analyses of risks and alternatives as guides to decision-making.It is intended for students in construction management and practicing professionals with an interest in the building construction process.