3.5.4- Making financial decisions: improving cash flow and profits

Question 1

How can businesses improve cash flow?

Answer 1

• Overdrafts
• Can hold less stock so less cash is tied to stock
• Reduce the time between getting payed by suppliers and getting money from customers
• Get controllers keep debtors in control
• Debt factoring
• Sale and leaseback

Question 2

What are the strenghts of cash flow forecasts?

Answer 2

• Can help predict when they’ll be short ot cash
• Can check if the firm isnt holding too much cash
• Can show to banks when trying to get loans

Question 3

What are the weaknesses of cash flow forecasting?

Answer 3

• Can be based on false assumption
• Circumstances can suddenly change. costs increase/ machines break
• A false forecast can have disastrous results