3.7 cash flow

Question 1

Profit

Answer 1

= Total Revenue - Total cost

Question 2

Working Capital

Answer 2

Current assets - current liabilities

Question 3

liquidity position

Answer 3

refers to whether a business has sufficient or insufficient liquidity to continue operating on a sustainable level. can measure with current ratio

Question 4

Cash flow forecast

Answer 4

-helps banks and other lenders to help them assess the financial health of the business
-help managers anticipate and identify period of potential liquidity problems, i.e times of cash deficiency. Managers can then plan accordingly
-facilitate business planning –> social responsibility

Question 5

causes of cash flow problems

Answer 5

• Overtrading
• Overborrowing
• Overstocking
• Poor credit control
• unforeseen changes

Question 6

strategies for reducing cash flow problems

Answer 6

• reducing cash outflows
• improving cash inflows
• obtaining additional sources of finance