What are the references used in liquidity planning?

The selection of forecasted values and last year's actuals as the basis for liquidity planning is grounded in sound financial management principles. Utilizing forecasted values allows a company to project future cash flows based on anticipated revenue, expenses, and other financial activities. This forward-looking aspect is critical for effective liquidity management, as it helps ensure that the business can meet its financial obligations.

Incorporating last year's actuals serves as a historical reference point that provides context and contributes to the accuracy of forecasts. Reviewing past performance can reveal trends and patterns that inform future projections and enhance overall planning fidelity. This combination of analyzing historical data while also considering future expectations allows for a more nuanced and reliable approach to liquidity planning.

In contrast, relying solely on previous year forecasts may not take into account actual performance data, which can lead to significant discrepancies between projected and actual cash flows. Current market trends and forecasts might provide valuable insights, but they may not offer a complete picture without historical context. Lastly, depending exclusively on last year's actuals could overlook evolving conditions, leading to underestimating or overestimating future liquidity needs. Thus, combining forecasted values with actual figures from the prior year represents a comprehensive and effective strategy for liquidity planning.