This is a Working Example of our Forecasts
Registered users can produce their own business forecasts in minutes; exactly as is shown here.

Report name: Sample Forecast

How Net and Operating Cash Flow Forecasts are Calculated

Cash generated by core trading describes operating cash flow. Net cash flow describes changes in the indebtedness or cash position of a business.

forecast for year beginning the 1st.May 2017May 2018May 2019
Pre-Tax Profit / Loss94,38199,038252,249
add: Interest Charges5,0627,4695,394
add: Depreciation10,87617,54320,290
less: Profits from Sale of Fixed Assets000
Net Operating Revenue110,319124,050277,933
Cash Flow from Current Assets
Increase / Decrease Stock / Inventory-90,000-25,000-20,000
Increase / Decrease Account Receivables-36,092-7,086-53,371
Increase / Decrease Prepaid L/C000
Cash Flow from Current Liabilities
Increase / Decrease Trade Creditors20,821-62616,557
Increase / Decrease Sundry Creditors5,4283,9533,994
Increase / Decrease VAT1,7312,1672,708
Increase / Decrease from Working Capital -98,111-26,592-50,113

Net Operating Cash Flow

Interest Paid-5,062-7,469-5,394
Corporation Tax Paid-6,000-13,613-18,495
Cash Flow from Tax and Interest -11,062-21,082-23,888
Paid up Share Capital Issued in the Year000
Purchase of Fixed Assets-55,000-15,000-50,000
Sale of Fixed Assets006,000

Dividends Paid

Cash Flow from Investing Activity-55,000-15,000-44,000
Net Cash Flow-53,85461,376159,931

Increase / Decrease in Asset Financing

Increase / Decrease in Loans000
Increase / Decrease in Factoring000
Increase / Decrease in the Bank20,939-49,739-169,693
Increase / Decrease in External Financing 53,854-61,376-159,931

What is an Operating Cash Flow Forecast

One crucial but often overlooked feature of a business plan is the operating cash flow forecast. This is a mistake as business bank managers attach great importance to it.

Thy do so with good reason. Operating cashflow determines whether or not your business will be able to service its external financing from cashflow generated from core trading activity and nothing else. There might be a special time where this is the case but persistent forecasts showing operating cash flow deficits is definitely not a good look..

How to Calculate a Net Operating Revenue Forecast

All that follows is calculated by Figurewizard simply from your own figures for sales, margin overheadsa and son on and a few simple ratios.

We will have first adjusted the pre-tax profit forecast by eliminating "provisional" charges.

Provisions for bad debts and depreciation do no involve cash transfers so these are then added back too, as are interest charges. While interest charges are chrges to profit involving cash transfers they only relate to financing, not core trading activity.

Exceptional items, such as revenue from the sale of an investment or of fixed assets which are also not concerned with revenue obtained from from trading activity are added back too.

What is left represents net operating revenue.

Working Capital and Calculating Operating Cash Flow

The next step comes from the balance sheet. Changes up or down in forecast net current assets (working capital) from those of the previous year are added to net operating revenue.

That completes the calculation of the operating cash flow forecast. What follows is how and why Figurewizard's changes to forecast current assets and liabilities reflect changes in the operating cashflow forecast.

Current Assets and Calculating Operating Cash Flow

Changes from the previous year to the forecast year for current (cash convertible) assets such as cash itself, stock / inventory and accounts receivable all affect forecast operating cash.

If current assets go up operating cash flow goes down.

For example an increase in accounts receivable from £5,000 to £8,00 might represent a £3,000 increase in working capital but in operating cash terms it also represents a £3,000 increase in loans made by a company to its customers, making it a charge to operating cash flow.

Stock / inventory tells the same story: An increase forecasts a charge; a decrease forecasts turning goods on the shelf into cash.

Current Liabilities and Calculating Operating Cash Flow

Financing liabilities such as overdrafts, loans or asset financing are excluded, only the difference between current operating liabilities (trade and sundry creditors) and the forecast year's feature.

If current liabilities go up, so does operating cash flow.

Trade and sundry creditors represent the commercial credit facilities of a business. Forecasting that to rise from £6,000 to £8,000 effectively adds an increase in loans from creditors of £2,000 into operating cash flow. Forecasting a fall by £2,000 however amounts to using cash to repay creditors instead.

Improving an Operating Cash Flow Forecast

Because operating cash flow represents the cash you are predicting the business to generate solely through core trading activities, any credible improvements you can make the better.

The following describes some of the actions that may be called for. Using the What-If Calculator / Planner is ideal for this.

 1.  Operating Revenue  Cut back on overheads and expenses
 2.  Operating Revenue  Better prices from suppliers to improve gross profit margins
 3.  Cash Flow from Current Assets  Reduce stock / inventory levels
 4.  Cash Flow from Current Assets  Improve cash collection from accounts receivable
 5.  Cash Flow from Current Liabilities  Negotiate better payment terms from suppliers

How a Net Cash Flow Forecast is Calculated

The next step is to add non-operating revenue and expenditure to operating cash flow. For example cash from the sale of fixed assets is added and non-operating expenditure for interest, tax and new fixed assets is deducted. This returns "net cash flow".

How to Read the External Financing Forecast

This describes forecast changes in borrowings. Using "Increase / Decrease Bank" as an example:

A positive return (e.g. bank: £20,000) indicates that an extra £20,000 of cash is forecast to be used during the year, meaning that either cash in the bank will decrease by £20,000 or that borrowing from the bank will increase by £20,000.

Similarly a negative return (e.g.. bank: -£20,000) indicates that £20,000 less cash is forecast to be used, meaning that either cash in the bank will increase by £20,000 or that borrowing from the bank will decrease by £20,000.

Operating Cash Flow and Servicing Debt

Forecasting operating cash flow matters. It not only measures the extent to which a business will be capable of financing its trading operations but how well placed it is to servicie future borrowings.

Single years' net cash flow deficits do not necessarily signify a problem though, particularly in the case of a business that is profitably expanding: However a trend of such deficits would be likely to pose a few searching questions from bank managers, senior creditors and investors.

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