The utility of cash flow forecasts in the management of corporate cash balances

Data-Driven Decision-Making and Its Application to the Corporate Cash Management Problem

“…The use of forecasts in the corporate cash management problem was first introduced by Stone (1972). More recently, Gormley and Meade (2007) claimed the utility of cash flow forecasts in the cash management problem.…”

“…The utility of cash flow forecasts has received little attention in the literature with the exception of Stone (1972) and Gormley and Meade (2007). A measure of quality of any forecasting technique is its predictive accuracy (Makridakis, Wheelwright, and Hyndman, 2008) and, under an economic perspective, predictive accuracy must be mapped to estimated cost savings.…”

“…However, the impact of predictive accuracy of the forecasts on the performance of the policy was not evaluated. It is expected that a better prediction will lead to better policies as hypothesized in Gormley and Meade (2007) and, consequently, an evaluation of the impact of predictive accuracy is a mandatory step. Furthermore, efforts in improving predictive accuracy have associated costs that have to be compared to savings obtained in order to decide if further efforts are worth.…”

“…Monte Carlo methods (Glasserman, 2003) are based on the law of large numbers which ensures that estimates derived from a random sample converge to the real value as the size of the sample increases. On the other hand, meta-heuristics such as evolutionary algorithms (Gormley and Meade, 2007;Costa Moraes and Nagano, 2014) deploy a given search strategy over a large set of feasible solutions.…”

“…As a result, we first linearize the CMP in order to guarantee the optimality of solutions. Then, we use this approach to reformulate the Gormley and Meade (2007) …”