From the course: Financial Modeling and Forecasting Financial Statements
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Forecasting operating cash flow
From the course: Financial Modeling and Forecasting Financial Statements
Forecasting operating cash flow
- Okay, now back to Home Depot at the end of 1985. Using our tools of constructing a forecasted income statement and a forecasted balance sheet, we can construct this forecast of Home Depot's operating cash flows for the years 1986 through 1990. Now notice the ugly negative forecast of operating cash flow numbers for Home Depot for the years 1986 through 1990. This forecast is created by assuming a continuation of Home Depot's existing operating practices. This forecast assumes that Home Depot sales will grow at 40% per year. This seems like a high sales growth rate, but it represents the assumption of a little slowing from the preceding years. In 1984, Home Depot sales had grown 69%, in 1985, sales grew 62%. So 40% is a conservative estimate. So how does forecasted sales growth impact forecasted operating cash flow? First, all else being equal, sales growth means higher net income. You can see this in the general…
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