Definition of Cash Flow Projection

Cash flow analysis (cash flow) is a report prepared to show changes in the increase or decrease in cash during a period. The cash expenditure of a company can continue to increase, for example, for the purchase of raw materials, payment of salaries, wages, honoraria, and so on.
However, there is also cash flow that is not continuous (cash outflow), for example for income tax payments, debt installments, dividends, interest, and so on. In other words, every proposed capital expenditure always contains two types of cash flow, namely:

a. Net Cash Flow (Net Outflow of Cash)

The net outflow of cash is the funds required for new investment

b. Net Annual Inflow of Cash

Net annual inflow of cash is a result of investment

If the company's funds are high, it means that it will give a picture of a high level of liquidity, but it will give an image of low cash flow and illustrate that the company is less effective in using cash. So that cash is not too high or too low, then funds in cash need to be planned and controlled, both in terms of income and expenditure. In preparing cash flow projections, each company must first prepare data, namely:

1. The number of funds needed, both from own capital and from outside capital (foreign capital)
2. Income/sales projections prepared with a sales plan
3. Production plans and production schedules prepared based on the sales plan
4. Projection of production costs that can be grouped according to production costs, namely:

   - Direct material costs

   - Direct wage costs

   - Indirect factory overhead costs (In the direct material projection, 

      a schedule for the needs and purchases of materials 

      can be made by taking   into account:)

   - The amount of material needed to produce goods

   - Inventory of materials at the beginning of the period

   - Inventory of materials at the end of the period

5. Projection of operating costs during the project period which includes:

    - Projected cost of sales

    - Projections of general and administrative costs

6. Based on the data that has been compiled, it is necessary to pay attention to:

   - Balance every minimum

   - Debt financing patterns

   - Accounts receivable billing patterns that come from credit sales 

     of non-cash expenses, for example, depreciation costs and others

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