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Study of Cash Flow Forecasting in Corporation Life Cycle

Author: CaiYanSong
Tutor: FangShuFen
School: Harbin Institute of Technology
Course: Management Science and Engineering
Keywords: cash flow forecasting corporate life cycle system dynamic model cash flow improving
CLC: F275
Type: PhD thesis
Year: 2007
Downloads: 1144
Quote: 6
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Abstract


Cash is the blood and living foundation of corporation. In nowadays, market competition is keen, economic environment changes swiftly, cash has become the key factor that hampers the corporation growth and leads the firm to bankruptcy. Along with the understanding of the important status of cash, the idea that cash is king has been accepted widely. Meanwhile the importance attached to cash flow management still does not reach the extent it reserved. As the foundation of cash flow management, cash flow forecasting researches are backward. In the light of avoiding financial crisis, promoting corporation growth healthy and sustained, incorporating corporate life cycle theory and cash flow forecasting, how to forecast the cash flow according the cash flow characteristics in life cycle is studied in this thesis.On the basis of the characteristics of cash flow drivers in life cycle stages, forecasting models are built for cash flow from operations, investing activity, financing activity and the whole cash flow. According to the cash surplus and deficiency, cash flow improving method for corporation in different life cycle is given.First, basing on the analysis of cash flow turnover process, cash flow direct drivers and indirect drivers are made clear which could influence cash flow. Cash flow drivers are the foundation of cash flow forecasting and improving.Operating cash flow is the main source of firm’s own fund. By analyzing the cash flow drivers about operating activity, considering the characteristics of life cycle stages, the differences of operating activity cash flow direct drivers in life cycle are compared. The model to forecast cash flow change tendency in life cycle is built. On the basis of long-term forecast, the model to forecast the cash flow fluctuation is built using grey topological predicting approach. Accurate forecast of cash flow can help corporation arrange the investing and financing activity reasonably.Investments usually need large mount of money. When corporation own fund is insufficient, financing is inevitable. Investing activity and financing activity interrelate closely, so in this paper they are analyzed at the same time as a whole. Studying the relation between investment scale and return without considering risk, financing scale and capital cost, model for forecast the investment and financing scale is built, which is composed of investing graph and financing graph. According the characteristics and financing risk bearing ability variety of corporation in different life cycle stages, the change of cash flow from investment and financing activity in life cycle stages is studied. Forecast methods of other cash flow about investing and financing activity and the characteristics in life cycle are also studied.Whole cash flow is the comprehensive result of operating, investing and financing activity. As these activities interact complicatedly, whole cash flow cannot be forecasted by adding these three kinds of cash flow together. Basing on the forecasting results of cash flow from operating, investing and financing activity, cash flow system dynamics model is built to forecast the whole cash flow. In this model all of the cash flow drivers and their relations are considered. Meanwhile, the model parameters are adjusted according to different life cycle stage characteristics to enhance forecast accuracy. Using the model, the joint influences of each activity on cash flow can be simulated, which could reflect the changes of net cash amount and find the sign of financial crisis.For corporation, cash surplus and deficiency are inevitable, which need to improve the cash flow. Basing on the cash flow forecast results, cash flow improving methods from operating, investing and financing are analyzed. The fitness of cash flow improving methods for different life cycle stages is studied.At last, in order to test the analysis conclusion in the thesis, empirical study about the difference of cash flow at different life cycle stages is carried out. Taking the 125 listed companies of chemistry industry in our country as sample, divide the samples into growing, mature and decline stage by 3 year average sales growth rate. Linear regression and Kruskal_Wallis nonparametric test methods are used to analyze the difference of cash flow and improving characteristics of corporation at different life cycle stages. The empirical study results support the theoretical conclusions in the thesis overall.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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