3.5.2.2 Analysing Financial Performance: The Value of Cash Flow Forecasts. Flashcards
1
Q
Why do businesses forecast cash flow?
A
Liquidity.
The most liquid asset a business can possess is cash. Must manage its cash flow in order to remain liquid.
2
Q
Why are cash flow forecasts important?
A
Allow the business to foresee times in the future when they are short on liquidity.
3
Q
What are the main benefits of forecasting cash flow?
A
Identifying problems in advance.
Making sure there is sufficient cash for suppliers and other payments.
Avoiding liquidation due to a forthcoming shortage of money.
4
Q
What are the problems with forecasting cash flow?
A
Changes in economy and consumer tastes.
Inaccurate market research/
Competition.
Uncertainty.
