Issues and Approaches to Forecasting -1

We are talking issues and approaches to forecasts. The most common approach to short-term cash forecasts is the receipts and disbursement approach. This method minutely traces the movement of cash and is preferred by firms that exercise very close cash control. 

 

After the firm has determined what types of receipts and disbursement are important in its overall cash flow, an important question is how to forecast the future level of these types of inflows and outflows. There are four common techniques of forecasting financial variables (i.e. items/disbursement): 

 

 Direct Method – In using this technique, it is assumed that the variable to be forecast is independent of all other variable, or alternatively, is predetermined. The variable (e.g. lease rental) is forecast by using its excepted or predetermined level.
 

Proportion of Another Account - This technique is used to project financial variables that are expected to vary directly with the level of another variable. For example, if sales volume increases, it is natural that more units will have to be produced to replenish inventory. It is then reasonable to project certain direct costs of production, such as direct materials, as a per cent of sales.
 

ompounded Growth - This method is used when a particular financial variable is expected to grow at a steady growth rate over time.

 

Multiple Dependencies – Under this technique the variable is considered to be influenced by more than one factor. The statistical technique of liner regression is often employed with historical data to determine which explanatory variables are significant in explaining the dependent variable. We will see the application of regression technique after a while. 

 

Since cash forecast deal mostly with the near future, many of the items on the cash forecast are usually estimated by some variation of the post method. The bases of these spot estimated are usually the firm’s other financial plans. Remaining estimates are mostly on a ‘proportion of another account’ basis, the another account often being particular period’s sales. The other two methods are employed less frequently. 

Issues and Approaches to Forecasting

An important question in short-term cash forecasting is what the length of the forest period to be forecast should be. This depends critically on the volume of the firm’s cash inflows and outflows. If the firm is sufficiently large, it will probably pay the firm to forecast on a daily basis. Small firms with lesser amounts to deal with are probably better off using a month or even a quarter as the length of their shortest period.

 

Most firms, however, to not confirm themselves to a single forecast; instead they use several forecast with periods of various lengths. In this context, the question arises how one forecast related to another. To see how this question arises, assume that a firm is practicing multiple period-length forecasting and is generating forecasts for the next quarter, months within this quarter, and weeks, within these months.

 

Does the forecast start with quarterly data and break this down into months, then break the months down into weeks, or does the forecast start with weekly data and aggregate this into months and quarters? Starting with data on relatively long periods and breaking it down into smaller periods is called distribution; starting with data on relatively short periods and aggregating into longer periods is called scheduling. Both the methodologies have advantages and disadvantages. Scheduling requires more data manipulation, but distribution required more sophisticated statistical techniques.

The most common approach to short-term cash forecasts is the receipts and disbursement approach. This method minutely traces the movement of cash and is preferred by firms that exercise very close cash control.

Cash Loans for bad credit

 

We are talking Credit Analysis, Credit Collection, Short term Investment and Cash Management in our previous post. We talk all those things with reference to business or commercial purpose. We workout working capital needs for business. We talk credit collection or cash management for business.

 Like business needs working capital management and planning, individual also need to plan for working capital or short term cash management. Last weekend I and my family were visiting a friend of us. When we were sitting together we were talking abut stock market and financial condition of AIG. We talked about AIG going to be bankrupt soon.

When we talked about AIG going to be bankrupt, he slowly speak up that he was running short on cash. Due to his past mistake he was having a bad credit which leaves him with very few options for purchasing necessities. He was suppose to pay home loan installment and also few other outstanding bills. He was proud and a private person so borrowing money from family members and friends were not going to happen. He was so nervous. He was just going to break his tears and cry with me.  I hold his hand and tell him don’t worry. There are many doors still open for you. I told him that kind of problem has its own solution it is very simple, so I suggested him not to be anxious, his problem can be resolve with a cash loans or installment loans from thinkcash.com.

He said in past he needed the  money and he took money from some cash advance company. He said the way they process my documents was so time consuming and lengthy and the rates were so high. I stopped him right away.  I asked him have you heard the name thinkcash.com. I told him about thinkcash.com. Thinkcash.com is a short term, personal loan company which lends amounts for emergency times and known for cash loans and installment loans.

As I am attached with finance industry in my professional life he knew the value of what I have told him. Thinkcash.com is quick, private and personal. The rates are typically 25-75% lower than payday loans and other loans providers available online. I told him that you can fill out application form online and the money wired by the next business day. Once you applied, all you have to do is to wait.  No need to fax or call an officer in charge for the status of your loan or even go for follow up. Isn’t it the fastest way rather than the others?

He asked me, what about repayment and penalties. If he doesn’t have money to pay off completely at a time, are there any penalties? Thinkcash.com cash loans can be paid on installment basis. The process is nicely streamlined. I want to give special annotation with this note; thinkcash.com is a no hassle loan company.

He was then very happy to know that there is still a solution for his short term financial needs.