Cash Flow Forecast For Middletown Construction ✓ Solved

Cash Flow Forecast for Middletown Construction, Inc.

The purpose of this assignment is to create a cash flow forecast for Middletown Construction, Inc. This will include sales forecast, cash collections, direct manufacturing costs, cash inflows, cash outflows, and a summary of cash flow. The financial summary must be structured across the months of the year.

Sales Forecast

The sales forecast for Middletown Construction, Inc. needs to project revenues based on historical data and market trends. Each month should reflect the anticipated sales values which will contribute to the cash inflows. Accurate forecasting is crucial for financial planning and ensuring the company can meet its financial obligations.

For the purposes of this forecast, assume the following estimated sales figures:

• January: $100,000
• February: $120,000
• March: $110,000
• April: $130,000
• May: $140,000
• June: $150,000
• July: $160,000
• August: $170,000
• September: $180,000
• October: $190,000
• November: $200,000
• December: $210,000

Cash Collections

Cash collections are based on the sales figures, with the following distribution: 20% collected in the month of sale, 60% in the first month after sale, and 20% in the second month after sale. This pattern ensures that the cash flow reflects actual receipt timings, which is vital for maintaining liquidity.

Cash Inflows

The total cash inflows can be summarized as follows:

Direct Manufacturing Costs

Direct manufacturing costs will include payments for raw materials, administrative salaries, lease payments, miscellaneous tax payments, and any new plant costs. Ensure that these costs are forecasted accurately to provide a clear picture of expected cash outflows.

Cash Outflows

The total cash outflows for each month can be summarized in the following table:

Net Cash Gain or Loss

The monthly net cash gain or loss will be calculated by subtracting total cash outflows from total cash inflows. This calculation is critical to track the financial health of the company. Here is a summarization of that calculation:

Cumulative Net Cash Gain or Loss

The cumulative net cash gain or loss will help assess the overall cash position throughout the year. The monthly totals should be tracked to monitor whether the cash flow is improving or deteriorating over time.

Cash Flow Summary

The cash flow summary includes the cash balance at the start of each month, net cash gain (or loss) during the month, and the cash balance at the end of the month. This summary is crucial for understanding the cash position and ensuring adequate funding for operational needs.

Conclusion

Preparing a cash flow forecast is essential for effective financial management in any organization. By accurately projecting sales, collections, and expenditures, Middletown Construction, Inc. can ensure that it remains solvent and achieves its business goals throughout the year.

References

• Brigham, E. F., & Ehrhardt, M. C. (2014). Financial Management: Theory & Practice. Cengage Learning.
• Graham, J. R., & Harvey, C. R. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics.
• Khan, M. Y., & Jain, P. K. (2009). Financial Management: Text, Problems, and Cases. Tata McGraw-Hill Education.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Essentials of Corporate Finance. McGraw-Hill Education.
• Damodaran, A. (2010). Applied Corporate Finance. John Wiley & Sons.
• Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill/Irwin.
• White, G. I., Sondhi, A. J., & Fried, D. (2003). The Analysis and Use of Financial Statements. John Wiley & Sons.
• Peterson, P. P., & Fabozzi, F. J. (2012). Analysis of Financial Statements. Wiley.
• Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and Managing the Value of Companies. Wiley.
• Gallo, A. (2017). The Importance of Cash Flow for Small Business. Harvard Business Review.