Hi, everyone. As we discussed, the sequence in which you execute your financial statement forecast is important. As the financial statements are linked together in many items such as revenue, serve as the forecast driver for individual line items within the income statement, balance sheet, and statement of cash flows. Within this video, we'll discuss our approach to forecasting the statement of cash flows. We start by forecasting cash from operations which begins with net income on the accrual basis of accounting obtained from the forecasted income statement and reconcile to the cash basis by adding back non-cash income statement items and adjusting for the change in operating assets and liabilities obtained from the balance sheet. We then use a trend-based approach and assumptions developed from our assessment of a company's strategies and initiatives to forecast cash from investing and financing activities. We start by preparing the forecast for cash from operating activities. We use the following assumptions and inputs, net incomes obtained from the income statement. Many non-cash items are forecasted to align with income statement growth rates aligned with prior-year levels or forecasted to equal zero. The change in operating asset and liabilities are calculated by the difference between the current year and prior year applicable balance sheet line items. Finally, we use other as a plug so that cash on the statement of cashflows ties to the balance sheet. As previously mentioned, the starting point for calculating cash from operating activities is net income obtained from the forecasted income statement. We then add back or deduct non-cash items such as depreciation, amortization, deferred tax items, compensation expense, asset impairments, gains, and other items. Depreciation is forecasted to align with the PP&E forecast. Amortization is held flat to the prior year. Given the volatility and unpredictability of the change in fair value of business acquisition liabilities, asset impairments, and gains, we forecast that these items will not have an impact on cash and thus forecast them to equal zero. Next, the change in deferred income taxes are estimated to increase in line with net income growth rates. Non-cash compensation expense is held flat to prior-year levels and other is used as a balancing plug figure so that the overall cash balance equals the amount forecasted on the balance sheet. Finally, the impacts from change in operating assets and liabilities are calculated directly from the difference between the current year and prior year applicable balance sheet line items. Now turning to cash from investing activities, the following assumptions and inputs are used. Cash used to purchase capital equipment is forecasted to align with sales and PP&E growth rates. In order to maintain compatibility with our core base business and given the unpredictability, we do not forecast the sale of assets or impact of acquisitions, and finally, other is forecasted at trend levels. As previously mentioned, CapEx is forecasted to align with sales and PP&E as investments in CapEx are often used to drive growth. Next, we do not typically forecast proceeds from the sale of assets or acquisitions due to their unpredictability and in an effort to maintain your comparability with the base business, and finally, others forecasted to align with trend or prior-year levels. Finally, cash from financing activities. Many of the assumptions and forecast inputs are obtained from the balance sheet. For example, repayment, new issuances of debt, are aligned to changes in debt balances on the balance sheet. Proceeds from stock option exercise, dividend payments, and share repurchases are aligned with the shareholders' equity forecast. Finally, it's important to ensure that the ending cash balance ties to the balance sheet, we use the other line item and cash from operating activities as a plug balance figure. As we previously mentioned, debt activity is aligned with the balance sheet. As we were forecasting the balance sheet, we assume that debt would remain at prior year levels thus indicating no new issuances or repayments. Next, we assume the proceeds from stock option exercises will remain equal and consistent to prior levels. Payment of cash dividends and purchase of treasury stock are closely linked to the equity forecast on the balance sheet. Finally, due to their unpredictability and limited prior year activity, we do not forecast for the payment of business acquisition liabilities, deferred financing items, and the effective exchange rates on cash. Finally, it's important to ensure that the change in cash balance plus the beginning balance equals the cash forecasted on the balance sheet.
