3.5.4 Making financial decisions: Improving cash flow and profits

Question 1

Cash flow

Answer 1

Money coming in and out of a business

Question 2

Cash inflows :

Answer 2

-Sales revenue
-Share capital
-Loans
-Personal savings

Question 3

Cash outflows:

Answer 3

-Wages
-Rent
-Suppliers
-Paying debts

Question 4

Net cash flow

Answer 4

All cash in flows-all cash outflows

Question 5

Cash flow forecast advantages

Answer 5

-Organised
-Can see all your costs clearly
-Plan what you expect to happen
-Allows you to budget
-Preparation time
-Monitor cash flow effectively
-Investors have access to the cash flow

Question 6

Cash flow forecast disadvantages

Answer 6

-Doesn’t take into account a change in costs
-Overwhelming (a lot of info)
-Based on predictions
-Takes time
-Mistakes can be made
-Customers do not pay on time (Trade credit)

Question 7

Debtors

Answer 7

Amount owed by customers to you

Question 8

Creditor

Answer 8

Amount owed to supplies by you

Question 9

Inventories

Answer 9

Cash tied up in raw materials, works in progress and finished goods

Question 10

Improving cash flow position in the short term

Answer 10

-Reduce current assets
-Sell surplus fixed assets
-Delay payments

Question 11

Improving cash flow position in the long term

Answer 11

-Increase equity finance
-Increase long term liabilities
-Reduce net outflows on fixed assets

Question 12

Factors affecting cash flow

Answer 12

-Trade credit
-Seasonal demand
-Type of product
-Timings of cash flow
-Nature of business

Question 13

Improving cash inflow

Answer 13

-Marketing
-Get debtors to pay
-Reduce payment plan w/debtors
-Overdraft (short term, within 12 months)
-Bank loan (long term, over 12 months)

Question 14

Improving cash outflow

Answer 14

-Changing suppliers
-Loan repayments
-Interest payments
-Day to day expenses