The cash flow statement is used to analyse the flow of cash funds in a firm. It shows the movement of cash into and out of the firm and its net impact on the cash balance within the firm. Forecasting project cash flows involves numerous variables and many participate in this exercise. Capital outlays are estimated by engineering and product development departments, revenue projections are provided by the marketing group and operating costs are estimated by production people, cost accountants, purchase managers, personnel executives, tax experts & others.
The role of the finance manager is to coordinate the efforts of various departments and obtain information from them, ensure that the forecasts are based on a set of consistent economic assumptions, keep the exercise focussed on relevant variables and minimise the biases inherent in cash flow forecasting.
Indian financial institutions have prescribed a format for preparing the cash flow statement. Infact, this format is a cash flow budget. According to the requirements of the financial institutions, this format should be prepared on half-yearly basis for the construction period and on an annual basis for the operating period for managerial purposes. However, it may be more helpful to prepare it on a quarterly basis for the construction period and half yearly basis for the operating period, at least for the first 2 to 3 operating years. This will facilitate better financial planning, project evaluation and fund control.