Corporate Cash Flow Analysis

Corporate revenue and cost flows are cash flows the stochastic patterns of which can be estimated from historical observations. Estimated patterns can be augmented with subjective assessments of management to form combined stochastic processes (the procedure known as Bayesian estimation). Many types of stochastic processes may be relevant in modeling corporate cash flows.

Corporate cash flows can be modeled both on aggregate and business unit levels. In the latter case corporate level cash flows will be obtained through an appropriate process of aggregation from the business unit level. Many types of risk factors can drive cash flows, and hence corporate cash flows can follow rather complex stochastic models.

Cash flows can be simulated over any desired time horizon. Future current value forecasts for any time points and forecasted paths on different confidence levels can be established. Similarly, net present values of cash flows and their distributions can be determined. All analytics can be processed both on business unit and corporate levels. This creates the possibility to determine the true contribution to group value and its risk profile of any business unit by analyzing the corporate level statistics both including and excluding the business unit.

All the methods of standard market risk and counterparty credit risk analysis are available for corporate cash flow analysis.