Working Capital Management

Working Capital Management (WMC)

Source of Uncertainty in Cash Forecasting

Accurate cash flow forecasting hinges on the forecaster’s ability to reduce the amount if observed error between forecast values and actual values that have occurred. Given the short-run nature of the cash forecast, with most things occurring in the near future, one would tent to think that most financial transaction could be forecast very accurately. This is far from true.


In practice few firms, if any are able to forecast their inflows and outflows accurately. Sales forecasts are notoriously unreliable, for actual sales depend in part upon factors that lie outside the control of the firm. Changes in the marketing of competitive products, as well as changes in general economic conditions, can lead to large forecasting errors.


We may further note that any errors in sales forecasts have multiple impacts on the firm’s cash flows; they impact on receivable levels (and therefore collections) and also on production expenses (and therefore disbursements).



October 23, 2008 - Posted by | Assets, Business Flow, Capital, cash loans, Credit Analysis, Credit Repair, Credit Rport, Current Assets, Working Capital, Working Capital Management | , , , ,

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