hello, I tend to ask a lot of pre-level1 questions here, and I apologize, but I appreciate all the input that I’ve been getting back. You guys know your stuff and I want to thank you for taking your time to drop knowledge on a young equity gangbanger, fah real.
seriously though, So I’m very interested in forecasting, as it determines cashflows, and thusly valuations. So more accurate the forecasting, the more accurate the cashflows, the more accurate your valuations, right?
so, again sorry for the possibly annoyingly obvious question, but Is there a field of study for cashflows? or forecasting cashflows? will CFA cover this? I know a little about forecasting demand using time-series, the compound growth model, some regression demand equation stuff and different moving averages, but is there anything better? Do you guys know of any good books? fields of study who’s textbooks may be useful? I don’t know. It just seems like the most important thing in the world of finance is forcasting and cashflows… the real cashflows.
Just bought Creative Cash Flow Reporting and Analysis: Uncovering Sustainable Financial Performance about a week ago. It’s mostly focused around figuring out some of the ways firms can dick around with cashflow from operations and how to drill down to a true, sustainable number for CFO to use in your models and forecasts, as well as to determine how much cash the business is generating and consuming. So far it seems pretty good.
Thanks for the recommendation, supersadface. I did a quick preview of the book and it looks both entertaining and useful. I’ll pick up a copy.
To the original poster, there are a couple books that I find highly useful about “best practices” for projecting cash flows, if you were to build your own financial model. These are McKinsey’s “Valuation” and Castillo and McAniff’s “Practitioner’s Guide to Investment Banking.”
There’s some overlap in material and ideally you’d have both on your shelf. The McKinsey book is better known by the masses, but the Practitioner’s Guide really is practical and the methods they suggest are indeed used by investment bankers. And yes, you’re absolutely correct in that forecasting cash flows properly is essential but very often, people build up their DCF or other cash flow-based models incorrectly, leading them to draw the wrong conclusions about how sustainable a company’s performance is or what that company is really worth.