Finance

Cash flow projections are something that can be of use to an individual in making everyday decisions of his life and can be as important as making a finance decision for a firm which may impact its performance big time into the future , and whose consequences could mean loss or gains worth millions of dollars to the firm

Discounted cash flow evaluation is the term given to the analysis of an investment in a particular way , i .e . all the future payments are estimated and discounted to give a present value . Following are

some of the major uses and advantages of cash flow projections

Firms and individuals calculate the present value of an investment before putting their money into it . This enables them to make sure they do not invest more than what is requires to obtain the desired future value

Similarly , parents who want to save money for their kid 's college tuition , usually do so by estimating a present value which at a particular rate would be sufficient enough to increase the invested amount to the desired future value

It is used by firms when faced with a number of loan options available to finance their capital . They can use annuities in this case and try to calculate the present value of each loan , the one with the lowest Present value can then be opted for

Firms base their cash management mostly upon the forecasts that they obtain from these cash flow projections

For an individual , projecting present and future values , can help them when leasing assets for personal use , such as a car , or incase of mortgages , when an individual purchases a house , etc

If accurately forecasted , a cashflow forecast can guarantee steady growth to the firm , however , one has to bear in mind the fact that cash flow management is dynamic in nature , i .e , one requires to change and adjust it frequently depending on the business activities of the firm

REFERENCES

Brealey , Richard A , Stewart C . Myers , Alan J . Marcus (2001 . Corporate Finance . McGraw-Hill

What uses do cash flow projections have regarding present value and future value...