What does a cash flow budget forecast?

A cash flow budget is specifically designed to forecast the timing and amounts of cash flows within an organization over a certain period. It plays a critical role in financial management by providing insight into how much cash will be coming in and going out at various times, enabling an organization to ensure that it has sufficient cash on hand to meet its obligations.

This type of budget helps to anticipate periods of cash shortages or surpluses, allowing for informed decision-making regarding expenditures, borrowing, or investments. It is essential for maintaining liquidity, as it directly addresses how cash is expected to flow in and out. While other options, such as assessing long-term investments or profitability, are important aspects of overall financial management, they do not focus specifically on the cash flow timing and amounts, which is the primary function of a cash flow budget.