3.5.2 (2) cash flow Flashcards
what is cash flow?
the total cash inflows minus the total cash outflows
what are cash inflows?
payments recieved by a business
what are cash outflows?
payments made by a business such as to suppliers and workers
sources of information for cash flow forecasts: inflows
sales / revenue
taking out a loan
start up capital
debtors
sources of information for cash flow forecasts: outflows
rent
salaries
cost of supplies
paying back loans
utilities
what is liquidation?
turning assets into cash
what does insolvent mean?
when a business cannot meet its short term debts
what are debtors?
customers who have bought products on credit and agreed to pay at a future date
what are credit sales?
value of goods sold to customers who do not pay cash immediately
what is a cash flow forecast?
an estimate of a firm’s future cash inflows and outflows
what is net monthly cash flow?
the estimated difference between monthly cash inflows and outflows
what is the opening balance?
cash held by the business at the start of the month
what is the closing balance?
cash held at the end of the month - becomes next months opening balance
why do businesses forecast cash flows?Q
plan for the future
predicting future objectives
identifying cash shortages
what are some limitations on cash flow forecasts?
cannot be soley relied upon
can lead to bad decisions
doesn’t consider unpredictable factors
doesn’t consider shifts in demand
what are creditors?
suppliers owed money by the business
what is credit control?
the monitoring of debts to ensure that credit periods are not exceeded
what is bad debt?
unpaid customer bills that are now very unlikely to ever be paid
what is overtrading?
expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops
reasons for cash flow problems:
cost of living crisis
increase in inflation rates
union strikes
being ‘out of season’
ways to increase cash inflows:
overdraft
short-term loans
sale of assets
sale and leaseback
reduce credit terms to customers
debt factoring
what is an overdraft?
arranging a flexible loan on which the business can draw as necessary up to an agreed limit
what is a short-term loan?
a fixed amount of money borrowed for an agreed amount of time
what is sale of assets?
cash receipts from selling off redundant assets
