From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
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Forecasting cash flows
From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
Forecasting cash flows
- The value of an investment or a project depends on the size of the future cash flows expected to be generated by the investment in that project. Now, this is not a course in forecasting. If you want to dig deeper, see our LinkedIn Learning course on Financial Modeling and Forecasting Financial Statements. However, we can use some basic concepts to illustrate how to create a forecast of the future cash flows associated with the project. Here are those basic concepts. First, start with a good sales forecast. Second, construct a comprehensive forecast from small intuitive building blocks. Third, distinguish between fixed costs and variable costs, and then finally, don't forget capital requirements, both depreciable assets and working capital. Now let's go into the detail with respect to starting with a good sales forecast. The starting point and in many ways, the most important point of any discounted cashflow analysis is the…
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