Blog · Forecast and pipeline · Finance and FP&A teams
Build a forward cash forecast from a projected income statement and linked balance schedules. Work through noncash adjustments, working capital, capital spending and debt, then prove the closing cash balance.
An indirect cash flow forecast turns projected profit into cash by adjusting for noncash expenses and movements in operating balances. Add investing and financing cash flows to reach closing cash, then prove that the projected balance sheet balances.
The method answers whether the financial plan generates cash, rather than just profit. The receipts-and-payments forecast answers a different timing question: when cash actually enters and leaves the bank.
Use the latest closed trial balance as the opening position. Bring a monthly projected income statement, receivables and inventory schedules, supplier payment assumptions, accrued expenses, fixed-asset purchases and a debt repayment schedule. Keep the same entity, currency and period throughout.
The SEC's financial statement guide explains that the operating section reconciles net income to cash by adjusting for noncash items and changes in operating assets and liabilities. Forecasting applies that bridge to projected balances rather than completed transactions.
Forecast operating cash flow = Projected net income + Noncash expense adjustments − Increases in operating assets + Increases in operating liabilities
Closing cash = Opening cash + Operating cash flow + Investing cash flow + Financing cash flow
Reverse the signs when balances decrease. A declining receivables balance releases cash; a declining payable balance uses it. Cash, borrowings and fixed assets are outside the operating working-capital adjustment.
The historical cash flow statement example covers reporting completed periods. Here, the critical extra work is explaining why each future balance changes.
Consider a US industrial distributor planning November 2026. All amounts are USD, shown in whole dollars with no rounding. Its income statement sheet, named PL, has these rows in columns A and B:
| Spreadsheet row | Projected income statement line | November (USD) |
|---|---|---|
| 2 | Revenue | 1,000,000 |
| 3 | Cost of goods sold | 600,000 |
| 4 | Operating expenses, including depreciation | 240,000 |
| 5 | Interest expense | 20,000 |
| 6 | Income tax expense | 35,000 |
| 7 | Net income | 105,000 |
| 8 | Depreciation included in operating expenses | 40,000 |
Calculate B7 with:
=B2-SUM(B3:B6)
Depreciation is an expense in profit but does not require a November payment. Add it back once in the cash bridge. The company has no asset disposals, impairments, stock compensation or other noncash adjustments in this example.
Do not enter closing balances simply to produce a preferred cash result. Receivables should follow expected collections; inventory should follow purchasing and usage; payables should follow invoices and payment dates. The controller owns the accounting classification, while collections, purchasing and treasury supply the operational assumptions.
On a sheet named Balances, use column B for October 31 balances, C for November 30 forecasts and D for the operating cash adjustment:
| Row | Operating account | Opening (USD) | Closing (USD) | Cash adjustment (USD) |
|---|---|---|---|---|
| 2 | Trade receivables | 300,000 | 350,000 | -50,000 |
| 3 | Inventory | 200,000 | 230,000 | -30,000 |
| 4 | Trade payables | 150,000 | 175,000 | 25,000 |
| 5 | Accrued operating expenses | 50,000 | 55,000 | 5,000 |
| Total operating adjustment | -50,000 |
Enter the asset formula in D2 and fill through D3:
=B2-C2
Enter the liability formula in D4 and fill through D5:
=C4-B4
This example assumes no write-offs, acquisitions, foreign-currency movements or reclassifications. If those exist, separate them before treating a balance movement as a cash timing adjustment.
On a sheet named Cash, put these lines in column A and their values or formulas in B:
| Row | Cash bridge | November (USD) | Formula or input |
|---|---|---|---|
| 2 | Net income | 105,000 | =PL!B7 |
| 3 | Depreciation added back | 40,000 | =PL!B8 |
| 4 | Operating balance adjustment | -50,000 | =SUM(Balances!D2:D5) |
| 5 | Operating cash flow | 95,000 | =SUM(B2:B4) |
| 6 | Capital expenditure paid, positive input | 70,000 | Payment schedule |
| 7 | Debt principal repaid, positive input | 20,000 | Debt schedule |
| 8 | Net cash movement | 5,000 | =B5-B6-B7 |
| 9 | Opening cash | 120,000 | Closed trial balance |
| 10 | Closing cash | 125,000 | =SUM(B8:B9) |
Capital spending is the only investing cash flow, and principal repayment is the only financing cash flow. There are no dividends or new borrowings. Interest and income taxes are paid in the month, with no opening or closing related accruals.
Operating cash flow less capital spending is $25,000 here, before the debt repayment. The free cash flow forecast develops that measure; the SEC cautions that free cash flow definitions vary, so label the calculation rather than treating it as cash available for any purpose.
First, independently reconstruct operating cash using the same assumptions:
| Check | Calculation | November (USD) |
|---|---|---|
| Customer receipts | 1,000,000 + 300,000 − 350,000 | 950,000 |
| Inventory purchases | 600,000 + 230,000 − 200,000 | 630,000 |
| Supplier payments | 630,000 + 150,000 − 175,000 | 605,000 |
| Operating expense payments | 240,000 − 40,000 + 50,000 − 55,000 | 195,000 |
| Operating cash flow | 950,000 − 605,000 − 195,000 − 20,000 − 35,000 | 95,000 |
That equals the indirect operating subtotal. Complete the balance sheet using the opening trial balance and the projected schedules:
| Balance sheet account | October 31 opening (USD) | November 30 closing (USD) |
|---|---|---|
| Cash | 120,000 | 125,000 |
| Trade receivables | 300,000 | 350,000 |
| Inventory | 200,000 | 230,000 |
| Net fixed assets | 400,000 | 430,000 |
| Total assets | 1,020,000 | 1,135,000 |
| Trade payables | 150,000 | 175,000 |
| Accrued operating expenses | 50,000 | 55,000 |
| Debt | 200,000 | 180,000 |
| Equity | 620,000 | 725,000 |
| Total liabilities and equity | 1,020,000 | 1,135,000 |
Net fixed assets close at $400,000 + $70,000 − $40,000 = $430,000; debt closes at $200,000 − $20,000 = $180,000; equity closes at $620,000 + $105,000 = $725,000.
The opening asset and liability/equity totals both equal $1,020,000. Projected assets sum to $1,135,000, matching projected liabilities and equity. The difference is zero without a balancing plug.
Upload your projected income statement, opening and closing balance schedules, and cash outcomes in a file or Google Sheet. Covirage maps the columns; its tools compute and check the supplied figures, and the external AI model explains differences with every figure traced to its rows. Create a free Covirage account and bring a sample of your own export.
See Covirage for finance teams for the supporting workflow.
It can support a monthly financial plan, but weekly liquidity decisions usually need dated receipts and payments. A month-end receivables balance does not reveal whether a large collection arrives before or after payroll. Keep a separate short-term cash schedule when timing matters.
Revenue can enter projected profit before customers pay. An increase in trade receivables represents sales still uncollected, so the indirect bridge subtracts that increase. Exclude noncash write-offs and other movements from the collection calculation or account for them separately.
Debt principal repayments belong in financing cash flows, outside the operating subtotal. In this US company example, interest expense remains in net income and is paid during the month. A separate debt schedule should distinguish interest, principal, new borrowing and noncash changes.
Opening cash plus operating, investing and financing cash movements should equal closing cash. That closing cash must also make the projected balance sheet balance. Tie receivables, inventory, payables, fixed assets, debt and retained earnings to their supporting schedules before accepting the result.