From the course: Finance Foundations: Business Valuation
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Cash flow forecasts
From the course: Finance Foundations: Business Valuation
Cash flow forecasts
- A DCF, or discounted cashflow analysis, requires that we have a number for the interest rates so that we can do the discounting, and also that we have forecast for the cash flows. We can use the structure of accounting to create a disciplined forecast of the future cash flows for a business. This brief discussion is merely an introduction to the fascinating topic of creating pro-forma or projected financial statements. But this will give you an understanding of the fundamental concepts. A proforma, or projected financial statement, can be used to get an overall picture of a company's future financing needs, its potential problem areas and so forth. Three important questions to ask in preparing a pro-forma financial statement are as follows. What's the starting point of any financial statement forecast? Second, what causes increases in the company's assets and liabilities? And number three, what causes increases in…
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