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CMA Intermediate · Financial Management and Business Data Analytics · Management of Cash and Cash Equivalents

In cash forecasting, which method projects future cash flows by analysing the expected movement of balance sheet and income statement items, such as profit adjusted for non-cash items and changes in working capital?

The adjusted net income method forecasts cash by starting from projected net income, adding back non-cash charges like depreciation, and adjusting for changes in working capital. It is used for medium to long-term forecasts, unlike the receipts and disbursements method, which lists direct cash flows.

  1. AAdjusted net income methodCorrect
  2. BReceipts and disbursements method
  3. CMoving average method of sales
  4. DPayout ratio method

Explanation

The adjusted net income method starts with projected profit, adds back non-cash items and adjusts for working capital changes to estimate cash. The receipts and disbursements method instead lists direct cash receipts and payments and suits short-term forecasts.

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