5.2 Cashflow Forecast + Working Capital

Question 1

what’s a cash flow/cash?

Answer 1

term bus uses to describe $ they have available to plan day-to-day running of bus

Question 2

cash inflow def?

Answer 2

defined as $ coming into the bus

Question 3

cash outflows def?

Answer 3

defined as $ going out of the bus to pay for bills/suppliers/repayments

Question 4

3 inflow types

Answer 4

loans, revenue/sales, share capital

Question 5

6 outflow types

Answer 5

supplier payment
overhead payment
wages/salaries
loan repayments
mortgage/rent repayments
investments/growth

Question 6

cash flow forecsast def

Answer 6

financial statements predicting future cash inflows/outflows so a bus can ensure it has enough cash to cover costs of its outflows

Question 7

2 good things a cashflow forecast can be used for

Answer 7

1) forceast cashflow timings –> manage cash so it doesn’t have a shortage, resulting in ability to pay goods
2) plan for future/predict when it might have cash to afford growth/investments

Question 8

4 short-term methods to solve cashflow probs

Answer 8

• SECURE BANK OVERDRAFT (can have - cash balance for a while, but banks usually charge interest rate)
• ASK FOR TRADE CREDIT ON SOME OUTFLOWS (have time to pay for expenses, normally w/ bills)
• ASK TRADE RECEIVABLES TO PAY MORE QUICKLY
• BANK LOANS (only delays probs unless can generate large inflow)

Question 9

2 long term methods to solve cashflow probs

Answer 9

• increase inflow/reduce outflow

- ensure there’s enough inflow to cover costs b4 outflow has to be paid (secure funds)

Question 10

working capital def

Answer 10

another word for $, $ a bus works w/ on short-term basis, $ available to cover daily expenses

Question 11

capital expenditure def

Answer 11

$ bus obtains by purchasing costs

Question 12

4 stages in working capital cycle

Answer 12

cash, buy inventory, purchase goods, sell to customers

Question 13

liquidity def

Answer 13

ability/extent to which bus can meet/pay its short-term liabilities

Question 14

good liquidity characteristics? 2

Answer 14

• positive net cash flow

- has enough cash to pay bills

Question 15

2 bad liquidity characteristics?

Answer 15

• negative cash flow for most months

- more bills to pay than it has cash coming in to pay

Question 16

4 liquidity prob consequences?

Answer 16

• SUPPLIERS/BILLS NOT PAID ON TIME (incurring late payment charges/interest)
• SUPPLIERS STOP SUPPLYING BUS IF HIGH RISK
• BANKS WON’T LEND/CHARGE HIGH INTEREST RATE (since view as high risk)
• RESORT TO LONG-TERM FINANCE (bigger debt/delay probs)

Question 17

4 ways to improve poor liquidity?

Answer 17

• ask trade receivables to pay on time
• cancel further investment
• increase inflows to bus (up selling price/sell more units)
• control costs (cheaper supplies)