By Hakim Lyngstadaas and Terje Berg.
The consistency principle when estimating cash flows states that the net present value of the discounted cash flow should be the same, even when using different estimation methods and techniques.
However, the estimation is not straightforward when estimating nominal and real net change in working capital. A case experiment with 62 students was conducted, the results suggesting that they struggle with the consistency principle when estimating net changes in working capital as part of cash flow analysis.
This technical note proposes solutions to this challenge. The value from this technical note is to ensure correct estimation in net working capital cash flow changes, which contributes to providing an adequate level of liquidity, and gives a sound judgement in business project analysis and estimation of a firm’s value.Content reserved for CMA Australia members. Please go to HOME PAGE and log in to see the content. Your Username is your email address registered with CMA Australia. Your Password is you Member Id Number which starts from either MID/CID. This is printed on your certificate/renewal notice/invoice. You are required to input the full Id including MID/CID. User Name:_________________________ (your email address; e.g. firstname.lastname@example.org)Password: __________________________(your CID or MID number without spaces. e.g CID-003015) If you are having problems, members are requested to contact email@example.com to get log in details.