3.7: (Finance) Cash Flow Flashcards
What does a cash flow do?
Tells the actual flow of MONEY
Define petty cast (revise)
Cash from owner’s pocket
What can be considered by the cash flow
cash-only no cash equivalents
What happens if a business is not liquid enough?
Bankruptcy
Define insolvency
when cannot meet current liabilities
- due to insufficient working capital
Who are paid first in liquidation
the creditors
Define liquidation
To sell off assets to repay money owed to creditors
How to avoid insolvency
1.) Aware of working capital cycle
2.) Understand cash v. profit
3.) Cash forecasts + understanding cash flow
4.) Manage working capital
Define working capital
Money for day-day operations
- AKA “ney current assets”
- “current assets - current liabilities”
What are the three types of stocks
raw materials -> goods in process -> finished product
Give current liabilities
1.) overdrafts
- loaning over crdit
2.) creditors (e.g. suppliers)
- you owe money to
- but within 1 year
3.) Tax (gov money)
Outline the working capital cycle:
What is the other word for working capital cycle?
Inventory cycle
DIFFERENTIATE CASH V PROFIT
Cash
- revemue from sales
- (in specific context)
Profit
- Revenue - Cost
- beyond the BEP
Why is cash flow forecast important
Shows expected movement of cash
How to read cash flow
How to improve cash flow
Causes of overflow
