8) Meeting Compliance Requirements: Cash forecasts are frequently part of internal control procedure needed to comply with loan covenants, meet minimum capital requirements, or meet requirements for imprest tax accounts. 4) Meeting Strategic Objectives: cash forecasts are used to project future funding requirements and make operating decisions to support the strategic plan 5) Budgeting Capital: forecasting of revenue, expenditures and funding are not only helpful for developing cash forecasts, but are also needed for the evaluation of capital investment alternatives (i.e., capital budgeting) 6) Managing Costs: Cash forecasts can help minimize excess bank balances, reduce short-term borrowing costs, and increase short-term investment income 7) Managing Currency Exposure: Cash forecasts attributable to foreign operations are used to assess the degree of foreign currency exposure and provide information for policies designed to control currency risk. Early identification signals management to initiate corrective measures. 3) Controlling Financial Activities: Variance analysis that compares actual cash flows with projected caash flows can help identify problems such as unanticipated inventory changes, delays in A/R collection, the mistiming of payments, and fraud or embezzlement.
Knowing that the firm does not expect a cash deficit for a certain period of time allows the treasury professional to extend investment maturities and earn higher yields. If the firm follows a matching strategy for short-term investments, the maturity of an investment will be matched with the timing of future cash deficits.
Short-term investments returns are maximized when treasury professionals have time to select optimal investment instruments and maturities. most important motive 2) Maximizing Returns: a cash forecast provides the timing and amounts of anticipated surpluses and cash deficits.
1) Managing Liquidity: forecasting the net cash position at different intervals to identify potential cash excesses or shortages is critical for scheduling investment decisions and anticipating borrowing requirements to meet daily obligations.