3.5.2 - Analysing Financial Performance - Cash Flow Flashcards
Define liquidation
Turning assets into cash
Define cash flow
The total cash payments (inflows) into a business minus the total cash payments (outflows) out of a business.
Define business insolvency
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.
Define credit sales
The 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.
Define opening balance.
Any cash held by the business at the start of the month.
Define closing balance.
Any cash held at the end of the month which becomes the opening balance of the next month.
Why is cash flow so important?
A business may be forced into liquidation without a sufficient cash flow even if it is profitable.
Why is cash flow often tight in a start up business?
- Businesses have to offer longer credit periods to their own customers
- Businesses receive shorter credit periods from suppliers to pay their payables.
What are some cash inflows?
- Start up capital
- Sales revenue
- Bank loans recieved
- Debtors (any debts not required to be payed straight away)
What are some cash outflows?
- Lease and rent payments
- Utilities payments
- Wages
- Variable costs
What are payables?
People or organisations that a business owes.
What are recieveables?
Amounts of money owed to a business.
