Module 3 Cash Flow Estimation BHS427 Health Care Finance (AUG2014-1) Essay - 1

Module 3 Cash Flow Estimation BHS427 Health Care Finance (AUG2014-1) (SLP) - Essay Example Secondly, the business needs to look at some of the investments made by the organization in terms of creating future growth. Failure to outlay the investments made by the organization may result in the investments being categorized as capital expenditures (Damodaran, 2011). In the estimation of cash flows, certain advantages and disadvantages may arise from the entire process. Cash flow estimation is seen as a means of attaining an organization’s value or rate of return (Juhà ¡sz, 2011). Cash flows in and out of an organization’s projects are often used as inputs in various financial models, which in turn, assist an organization in determining the overall value placed on certain projects. Also, a business’s liquidity can be determined through cash flow estimation. It is imperative for businesses to find out if there is the availability of cash at hand, regardless of whether the business or organization is making profits from its operations. Cash flow estimations may forecast if the business is likely to fail, especially if they predict a shortage of cash in the business. Furthermore, cash flows are often used to assess the worth of income generated from certain projects (Damodaran, 2011). What this implies is that some of the projects carried out by organizations or businesses may fail to bring in the required or intended organizational targets, which means they may be of low quality. Cash flows provide the intended forecast to prevent long-term investments in such projects, which means that most organizations are capable of conducting operations that are composed of large cash items often considered high quality. Lastly, cash flows determine the risks involved with certain projects. Negative earnings need to be identified in cash flow estimations because they tend to become problematic at the end of a financial period. In this case, earnings need to be adjusted to reflect the effects of the accounting management. When an