3.2 Cash Flow Forecasting Flashcards
What is a cash flow?
The movement of money in and out of a company over a certain period of time.
What is the importance of cash flow?
- To identify cash shortages
- Supporting application for funding (investors see whether they should invest depending on how much the business is earning)
- Help when planning the business
- Monitoring cash flow (any problems can be investigated)
What is cash flow used for?
- Used to help obtain loans since lenders can see how much money is flowing into the business.
- Businesses can spot problems before they happen and make changes
- Businesses can decide what they want to do with any excess cash - e.g. expand
What is cash inflow/outflow?
Inflow is money received from customers and other sources, while outflow is money paid to suppliers
What are some examples of cash inflow/outflow? 2 Each
Inflow:
* Sales
*Capital from owners
* Bank loans
* Grants
Outflow:
* Pay to suppliers
*Rent and Interest Rates
* Salaries and wages
*Advertising
What is a liquid asset?
An asset that can be easily changed into cash
What is a cash flow forecast?
Prediction of all expected receipts and expenses of a business over a future time period and shows the expected cash balance at the end of each month.
How do you calculate net cash flow?
Total inflow - Total outflow
what is Opening balance?
Amount of cash at the beginning of each month
How do you calculate closing balance?
Opening balance + net cash flow
Name one limitation of a cash flow forecast when making business decisions (3m)
A limitation is that it is a forecast not actual figure (1). The forecast does not show what happens if goods are not sold (1) or provide a contingency plan if this occurs (1).
What is insolvent?
Inability to meet debts.
