3.5.2.2 Analysing Financial Performance: How to Construct Cash Flow Forecasts.

Question 1

What is a cash flow cycle?

Answer 1

The regular pattern of inflows and outflows of cash within a business.

Question 2

What is step one of a cash flow cycle.

Answer 2

Holding of cash in a business.

Question 3

What is step two of a cash flow cycle?

Answer 3

Outflow of cash to buy or hire factors of production e.g. land, labour etc.

Question 4

What is step three of a cash flow cycle?

Answer 4

Use of factors of production to make goods and/or services.

Question 5

What is step four of a cash flow cycle?

Answer 5

Inflow of cash in return for sale of goods and services.

Question 6

Define cash inflows.

Answer 6

Receipts of cash.

Question 7

Define cash outflows.

Answer 7

Payments of cash.

Question 8

What factors influence cash flow problems?

Answer 8

Amount of cash at the beginning of the cycle.

Length of time to convert inputs to outputs.

Credit payments.

Question 9

Define a cash flow forecast.

Answer 9

Estimates the expected cash inflows and outflows over a period of time.

Question 10

Why does cash flow need to be forecasted for a period of one year?

Answer 10

Because cash flow is often seasonal .

Question 11

What sources are used to construct a cash flow forecast?

Answer 11

Previous forecasts.

Cash flow statements.

Consumer research.

Competition research.

Banks.

Consultants etc.

Question 12

What are the key items actually included in a cash flow forecast?

Answer 12

Inflows.

Outflows.

Net cash flow.

Opening and closing balance.

Question 13

What is the formula for the closing cash balance?

Answer 13

Closing cash balance = opening cash balance net cash flow.