5.2 Cash Flow

Question 1

Working capital/ net current asset

Answer 1

Money available for daily running of business (money recieved from sale of goods in services)

Question 2

How cash flows into a business

Answer 2

Sales of good for cash
Payment made by debtors
Borrowing money from external source (bank)
Sale of business assets
Investors

Question 3

How does cash flow out of business

Answer 3

Purchasing raw materials for cash
Payment of wages or other expenses
Purchasing fixed assets
Repaying loans
Paying creditors of the business

Question 4

Diff sales revenue and cash inflow

Answer 4

Sales revenue -
from one source

Cash inflow -
From multiple sources like sales revenue and loans

Question 5

Business can run out of cash by

Answer 5

Allowing customers too long credit
Purchasing too many fixed assets at once
Expanding too quickly (purchasing too high levels of stock)

Question 6

Reasons for cash flow forecast

Answer 6

Asses financial health of company

Managers anticipate and identify periods of cash deficiency

Compared to actual forcast to improve future predictions

Question 7

Cash flow forecast

Answer 7

Opening balance (starting money)

Inflow (cash inflow)

Outflow (cash outflow)

Net cash flow (profit and loss (inflow-outflow))

Closing balance (money left with business)

Question 8

Cash flow forecast

If () surround no ..

Answer 8

No is negative

Question 9

Causes cash flow problems

Answer 9

Overtrade (selling more than it has)

Sudden changes (covid)

Overborrowing (due to interest)

Poor credit score

Overstacking (raw materials will get spoilt)

Question 10

Working capital

Answer 10

Money available for daily running of business

Question 11

Getting working capital

Answer 11

Seeking alternative sources of finance

Improving cash inflow

Reduce cash outflow

Question 12

Alternative sources of finance

Answer 12

Overdrafts

Sales and leaseback

Selling off fixed assets

Debt factoring

Gov assistance (loans grants)

Growth strategies
(Expanding international, gap in market)

Question 13

Improving cash inflow

Answer 13

Tighter credit control

Only cash payment

Change pricing policy (pay for stuff in installments)

Improved marketing plan (social media)

Improved product portfolio (vary product for diff places)

Question 14

Reduce cash outflow

Answer 14

Seem preference credit terms

Seek alternative suppliers

Better stock control (don’t overproduce)

Reduce expenses

Improved marketing plan

Question 15

Ways to minimise risk

Answer 15

Wider customer base

Pay large bill in installments

Ensure quality management for customer satisfaction