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Cash flow forecast
• A cash flow forecast is a plan that shows how much money a
business expects to receive in, and pay out, over a given period of
time.
Cash flow forecast
• Need to forecast the expenditure and the income.
• Accurate forecast is not easy.
• Need to revise the forecast from time to time.
Cost-Benefit Evaluation Techniques
• It consider:
The timing of the costs and benefits.
Benefits relative to the size of investment.
• Techniques
• Net profit
• Payback period
• Return on investment
• Net present value
• Internal rate of return
(1) Net profit
• The payback period is the time taken to recover the initial investment.
• Pros
• Easy to calculate.
• Gives some idea of cash flow impact.
• Cons:
• Ignores overall profitability
(3) Return on investment
• Disadvantages
• It takes no account of the timing of the cash flows.
• Rate of returns bears no relationship to the interest rates offered or changed by
bank.
Return on investment
(4) Net Present Value
• Pros
• Calculates figure which is easily comparable to
interest rates
• Cons: Difficult to calculate (iterative)
Risk evaluation