5.2d - Cash Flow Flashcards
1
Q
Cash flow forecasting definition
A
The process of estimating the expected cash flows over a period of time
2
Q
Cash-flow cycle definition
A
The regular pattern of inflows and outflows of cash within a business
3
Q
What does the length of the cash-flow cycle depend on?
A
- Type of product (some take longer to produce and are held in stock for longer)
- Credit payments
4
Q
Liquidity definition
A
The ability to convert an asset into cash without loss or delay
5
Q
Advantages of cash-flow forecasting:
A
- Identify potential shortfalls in cash balances in advance
- Makes sure that business can afford to pay debts
- Helps raise external finance
6
Q
Why can their be inaccuracies in cash-flow forecasts?
A
- Changes in the economy
- Changes in consumer tastes
- Inaccurate market research
- Unexpected competition
7
Q
Disadvantages of cash-flow forecasts:
A
- Sales can be lower than expected
- Customers may not pay on time
- Costs may be higher than expected
8
Q
How can a business improve its cash flow?
A
- Overdrafts
- Hold less stock
- Reduce time between paying suppliers and getting money from customers
- Debt factoring
- Sale and leaseback
9
Q
What are the two different versions of cash-flow forecasts?
A
- Best case
- Worst case
