3.7. Cash Flow Flashcards
What does it mean when there is good cash flow, poor profits
Cash is coming from sources other than sales revenue (e.g. loans, capital investments, etc.)
What does it mean when there is good cash flow, poor profits
Cash is coming from sources other than sales revenue (e.g. loans, capital investments, etc.)
What does it mean when there is poor cash flow, good profits
Sales are good, but payment of loans, capital equipment, poor collections practices, and early payments of supplies can bring cash flow down
Working capital cycle
Cash In
Payments to suppliers/employees/cash
Goods Produced
Goods Sold
Alternatively,
Cash In
Payments to suppliers/employees/cash
Services Rendered
Lag in flow of cash in the cycle can lead to slow down of production/operations
What does the cash flow forecast show?
Financial document that shows expected monthly cash inflows and outflows
Cash inflows
Usually from sales revenues when cash payment is received
Cash outflows
Payment of bills, usually itemized expenses
Net cash flow
The differences between cash inflow and outflow per period
How to calculate the Opening Balance?
Amount of cash at the beginning of the trading period
Add Cash inflow from sales + other income
Add itemized cash outflow of expenses including: stocks, labor, etc.
Closing balance is the opening balance of the next month
Causes of cash flow problems:
Overtrading
Overborrowing
Overstocking
Poor credit control
Seasonal or unforeseen causes
What does it mean when there is poor cash flow, good profits
Sales are good, but payment of loans, capital equipment, poor collections practices, and early payments of supplies can bring cash flow down
Working capital cycle
Cash In
Payments to suppliers/employees/cash
Goods Produced
Goods Sold
Alternatively,
Cash In
Payments to suppliers/employees/cash
Services Rendered
Lag in flow of cash in the cycle can lead to slow down of production/operations
What does the cash flow forecast show?
Financial document that shows expected monthly cash inflows and outflows
Cash inflows
Usually from sales revenues when cash payment is received
Cash outflows
Payment of bills, usually itemized expenses
