Cash Flow Forecast
As a rule, the vast majority of projects are planned in the horizon up to 3 years (36 months). However, to calculate the project payback and other integral indicators, the calculation period can be extended to 15 years (180 months).
You can specify the dynamics of changes in cash flows, after 36 months of planning, from the module "General settings". See section "General settings. Investment analysis".
How to set the dynamics of cash flows
Planning of the dynamics of changes in cash flows ( forecast cash flow) is indicated in percentage, respectively, for each of the three planned flows:
- Operating cash flow (%);
- Investment cash flow (%);
- Financial cash flow (%).
In the calculations, the planning of the dynamics of changes in cash flows is considered - as an increase in the absolute values of cash flows, relative to the corresponding prior period. Accordingly, the values of negative growth should be negative: for example, "-10".
To calculate the forecasted cash flow, an element-wise approach is used that allows for forecasting each component of the cash flow. To determine the value of the series elements (average annual cash flow), an extrapolation method with a simple trend correction is applied.
Budget-Plan Express is a software product for preparing business plans in Word and Excel format. Try the new version of Budget-Plan Express (6.02) to calculate integral indicators.
The detailed period of project planning (by months) is three years (36 months). As a rule, the working stage of almost all medium and most large projects does not exceed three years. For the calculation of subsequent periods (after 3 years of planning), the forecast trend of changes in the growth of cash flows is used. The maximum period for calculating investment indicators is 15 years.
In the table "Planning the dynamics of changes in cash flows" you need to specify the percentage increase in the absolute values of cash flows. The first three years are calculated and not available for editing.
The forecast coefficient for positive (negative) cash flows is calculated using the formula:
Кn = 1 ± Rn / 100% ≡ 1 ± r
Where:
Кn – forecast coefficient in n period,
Rn – the percentage specified in the n period,
r– percentage coefficient (Rn / 100%).
To determine the forecast value, the positive cash flow is multiplied by the forecast coefficient [1 + r], respectively, the negative flow – by [1 - r].
☛ note If the value is "0", it means that the cash flow in this period will be determined at the level equal to the previous period (year).
☛ if you want to reset the cash flow in the current calculation and in subsequent periods, in this case, in the calculation period you need to specify the forecast increase [-100%] – for positive cash flow, and, accordingly, [+100%] – for negative, and in subsequent periods simply specify "0".
Refer to the following table, which shows examples of calculations of forecast values by the above formula:
± CFn forecast = CFn * Кn,
± CFn forecast = CFn * (1 ± r)
Where:
CFn forecast cash flow in n period,
CFn – cash flow in n period.
Example of predictive value calculation.
| The value of cash flow (prior period) | The specified percentage | Coefficient | Factor | Forecast value of cash flow (billing period) |
| 100 | 0 | 0 | 1 | 100 |
| 100 | 15 | 0,15 | 1,15 | 115 |
| 100 | -13 | -0,13 | 0,87 | 87 |
| 100 | -100 | -1 | 0 | 0 |
| -100 | 0 | 0 | 1 | -100 |
| -100 | 15 | 15 | 0,85 | -85 |
| -100 | -13 | -13 | 1,13 | -113 |
| -100 | 100 | 1 | 0 | 0 |
After three years (after 36 months), the calculations use only free cash flow (FCF) or final cash flow at the end of the period - taking into account the forecast coefficients.
To change the settings, see «General settings. Investment analysis»
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