Showing papers on "Cash flow forecasting published in 1985"

Using Operating Cash Flow Data to Predict Financial Distress: Some Extensions

Abstract: Recently, financial statement users and regulators of publicly reported financial accounting data have argued in favor of the disclosure of detailed information on firms' current operating cash flows (Harris et al. [1980], FASB [1981], Smith [1982], and Thomas [1982]). The FASB suggests that such disclosures will allow users to assess better the amount, timing, and uncertainty of future cash flows. It states that "the greater the amount of future net cash inflows from operations, the greater the ability of the enterprise to withstand adverse changes in operating conditions" [1981, p. 11]. The presumption that historical operating cash flows enable better assessments of future cash flows, however, is based on intuition rather than on empirical evidence (Griffin [1982]). Our study was conducted to assess whether operating cash flow data and related measures lead to more accurate predictions of bankrupt and

Predicting Bankruptcy: If Cash Flow’s Not the Bottom Line, What Is?

Abstract: Analysts are continuously searching for techniques or models that can successfully judge the condition of a company 's health and thereby reduce forecasting errors and improve predictive performance. Various financial ratios have traditionally been used to classify failed and nonfailed companies. But the addition of cash-based funds flow components to traditional ratios can provide superior results in the prediction of financial failure. In particular, the dividend, investment and receivables components of funds flow provide significant information about a company's financial health. Having never been identified in prior ratio studies as significant factors in explaining bankruptcy, these funds flow components may supply unique information to the examination of corporate financial health. Dividends and investment, of course, represent cash outflows for a company. For healthy companies, receivables also represent outflows. One implication of this finding is that outflow components are more closely related than inflow components to the explanation of financial failure.

Curbing Public Expenditure: Current Trends

Abstract: Nearly every OECD country has faced a scissors crisis in public finance since the worldwide depression of the mid-1970s; in slow growth economies public spending has been rising faster than tax revenues. In response, a great variety of methods have been employed to control public spending. Governments have sought to: impose global ceilings on spending; modify indexation rules; decentralize decremental decisions among government agencies; improve cash flow management; devise balanced packages; introduce new constitutional rules; provide incentives for retrenchment; and privatize public sector activities. Efforts to impose cuts in spending have been directed at the bureaucracy; transfer payments; subsidies; local and regional government; and quangos. The conclusion emphasizes that retrenchment policy presupposes a shift in the balance of power between guardians and spenders.

Daily Cash Forecasting and Seasonal Resolution: Alternative Models and Techniques for Using the Distribution Approach

Abstract: Daily cash forecasting generally requires some method to reflect day-of-month and dayof-week effects. It requires the resolution of multiple seasonals, a problem given scant treatment in the econometrics literature. This paper first presents multiplticative and mixed-effects specifications of day-of-month and day-of-week effects as alternatives to the additive specifications. Then, several important estimation issues pertinent to each speeifi? cation are investigated, namely collinearity, holiday effects, length-of-month distortion, varying weekly-monthly pattern mix, and daily-monthly consistency. The paper develops a broad class of distribution-based linear forecasting models in great generality similar to the way that Box and Jenkins [1] provide a broad class of timeseries models that can be specialized via parameter selection (speeification). In our case, parameter selection (speeification) gives particular members of the linear class of distribu? tion models. A particular version can be tested against an alternative speeification via hypothesis tests on model parameters.

Capital budgeting and optimal timing of investments in flexible manufacturing systems

Abstract: This paper investigates the financial-economic decision process for investments in flexible manufacturing systems (FMS). Contrary to popular belief, we show that conventional capital budgeting techniques can be used to make such investment decisions. First, we identify theoverall impact of installing an FMS and present guidelines for a cash flow forecasting model. We then present ways in which to incorporate uncertainty in these cash flows within a risk-adjusted discount rate. These expected cash flows and the discount rate are used in calculating the net present value (NPV). Once the capital budgeting analysis is completed, a critical issue facing the firm is the optimal timing of the installation. We reinterpret the general results on optimal timing of investments within the special context of an FMS project. Finally, we illustrate the above technique via a stylized example.

Again Now: How Do We Measure Cash Flow from Operations?

Abstract: (1985). Again Now: How Do We Measure Cash Flow from Operations? Financial Analysts Journal: Vol. 41, No. 4, pp. 74-77.

Cash Flow, Profit and Performance Measures for External Reports: A Rejoinder

Abstract: (1985). Cash Flow, Profit and Performance Measures for External Reports: A Rejoinder. Accounting and Business Research: Vol. 15, No. 58, pp. 109-112.

On the Differences between Accrual Accounting Figures and Cash Flows: The Case of Working Capital

Abstract: 'See, for example, Bierman and Smidt [2], pp. 153-154; Levy and Sarat [6], p. 69; and Brealey and Myers [3], p. 85. various accounting procedures to evaluate the level of current assets. Therefore, it would not be surprising if, practical capital budgeting analysis, there would be a wide use of accounting procedures to evaluate the level of working capital. The use of these methods raises many crucial conceptual and practical difficulties. For example, should one use market or cost basis to evaluate inventories and receivables? Should one use FIFO, LIFO, or other methods to evaluate inventories? Which costs should be capitalized: fixed costs, variable costs, out-of-pocket costs, administrative, selling, etc.? The purpose of this paper is not to raise arguments for or against the various accrual accounting methods, but to investigate the relationship between some of these methods and the cash flows of a given project. It is shown here that if the actual cash flows occur only at the beginning and end of the accrual accounting periods, then there is a simple relationship between the

Financial effects of establishing a public office or public enterprise

Abstract: This paper deals with the effects on municipal budgets of establishing public offices or enterprises. The methodology described can assist with locational decisions and quantifies employment, income, and financial effects with the help of a macroeconomic model. A measure for changes in the cash flow position of a town is also introduced Two examples — the establishment of a district heating firm and a concert hall — demonstrate different financial effects arising from the contrasting characteristics of each enterprise and the nearby towns most affected. Whereas the district heating firm increases the municipal cash flow, a reduction results from the establishment of the hall.

Relevancy of cash flow in firm financial management

Abstract: The inadequacies of assessing business performance and credit worthiness by short run cash flow under conditions of inflation are stressed in this article. Because of the economic nature of traditional loan amortization, short-run cash flow cannot be relied on in gauging: (1) true business performance and (2) long-run repayment capacity. In addition, standard financial performance ratios using nominal flows are shown to be inadequate under inflationary conditions. This article stresses that business performance and credit worthiness analysis should be based on a real monetary basis. An example is provided to demonstrate the necessary modifications of nominal business flows to place the financial analysis on a real basis.

An Acquisition Analysis with Integrated Financial Ratio and Capitalization Models

Abstract: This paper analyzes an acquisition on the basis of a methodology that includes integrated ratios and capitalization techniques. The problem of conflicting results Inherent in analysis with different financial ratios is thereby obviated. Strengths and weaknesses in the acquired company are identified and forecasts of future cash flows are projected; these are based on (i) historical trends alone and (ii) historical trends plus the advantages of affiliation. Standard discounted cash flow procedures are applied to arrive at an investment worth that can be compared with the purchase price.

Security‐holder cash flows and the valuation of corporate investment projects

Abstract: The difference between adjusted present value and cost-of-capital discounting procedures for evaluating corporate real-asset investment projects is re-examined. The two approaches are shown to contain different implicit assumptions about the distribution of project cash flows to security-holders. The consequences thereof for the proper valuation of individual projects in the context of a multiproject investment plan are considered.

The Economics of Manufacturing Operations

Abstract: Cash flow management is concerned with controlling the financial resources of a company and thus underpins many of the techniques by which performance is assessed. It is therefore necessary to deal first with cash flow, so that the function and value of the methods of monitoring and controlling the detailed aspects of company performance which follow can be recognized clearly.

International Cash Management A study of the practices of Netherlands Based Companies

Abstract: An increasing amount of effort has been devoted to cash management in the Netherlands in recent years but a survey undertaken among 350 Netherlands based companies (1982–3) indicates that cash flows are generally badly managed, cash and foreign exchange being handled on the basis of ad hoc opinions rather than soundly conceived cash management policy. Improvements can be achieved through clarification of organisational problems, positioning cash management within the entire financial function of the company, and definition of the foreign exchange managers' tasks and responsibilities.

Risk and Investment

Abstract: The concept of risk in relation to property investment is generally only considered in the context of development situations. Even so, there can be few developers who seriously undertake risk analysis as a matter of course. Development appraisal models, like valuation models, tend to be simplistic and are rarely approached on a cash flow projection basis. ‘Residual valuation’ models ignore the explicit timing of payments (see Chapter 11). Whilst this can be quite useful for a first approach when a number of potential schemes must be rapidly assessed (and in many cases no detailed figures are available), the application of such models to realistically assess in detail the likely profitability of a scheme and associated problems must be regarded as seriously limited.