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What is the best way to prepare sources and usage statement to forecast FCF?


Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

To forecast Free Cash Flow (FCF) you will need to be able to forecast your company’s Balance Sheet in addition to the Income Statement, and with using these two statements compile a forecasted Statements of Cash Flows. Free Cash Flow is calculated by subtracting forecasted capital expenditures in each budget period from forecasted cash from operating activities.

When you use a planning and budgeting software solution that can automatically generate a Balance Sheet and a Statement of Cash Flows using your budget data, you will be getting the results you are looking for.

The software will allow you to choose whether you want the Statement of Cash Flows to use the Direct or Indirect method, so if you choose the Direct Method you will get the sources and use of cash throughout the budget period.

Then in the analysis section of the program you can tell the program to remove all projected capital expenditures from Cash Flow from Operating Activities and you will get the forecasted Free Cash Flow in every period of your budget.

This type of software is becoming a lot more common these days and is available and highly affordable to even smaller organizations.

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