12 Cash forecasting—risk analysis. Assume you are the financial manager about to prepare your company’s cashflow forecast for the next two years. You have been provided with forecasts about product volumes, selling prices and costs.

Requirement:

Describe the main characteristics of the following techniques, as applied to cashflow forecasting, AND explain how they might be used to aid decisionmaking.

You should also comment on the main differences between the two methods and on their respective shortcomings:

• Monte Carlo simulation;

• sensitivity analysis.