3.7 - Cash Flow Flashcards
how is a cash flow forecast structured?
- opening balance
- cash inflows
- total cash inflows
- cash outflows
- total cash outflows
- net cashflow
- closing balance
what is a cash inflow
when money goes into the business eg. through the sale of products
what is a cashflow forecast
a statement that shows the expected inputs and outputs of cash within a business over a period of time
- good for businesses to plan ahead + find any cash problems ahead of time
what are cash outflows
money that leaves the business
eg. purchase of new machinery
what can cause cashflow issues
limited cash inflows
* limited sales
* high competition
too many cash outflows
* loan capital
* expanding too fast
how to improve cash flow
increase cash inflows
* sources of finance
* marketing
* decrease trade credit to customers - manage creditors and debtors
decrease cash outflows
* lengthen trade credit terms
* reduce costs
* reduce amount of stock held by company
what is the difference between cash flow and profit
- the main difference is timing
profit - not affected by trade credit because the revenue does not change - goods still sold at a specific price
what you earned
cash flow - affected because the cash inflow will come in later
what you actually have
what is working capital
the funds available for the day to day running of a business
what does the working capital cycle look like and what does it represent?
- the processes from a product being produced to it being sold
what is liquidity
how quick an asset can be turned into cash
what is a business investment
when a business puts a large amount of money into fixed assets in hopes that it generates more profits
what is the relationship between investment, cash flow and profit
investments are made to improve future cash flow
- investment -> large amount of money: negative effect on cash flow
- if successful: over time more sales, positive cash flow and higher profits
