6.2 Cash Flow Flashcards
What is cash flow?
The money that flows into and out of a business on a day-to-day basis
What is net cash flow?
The difference between all cash inflows and outflows of a business
What is a cash flow forecast?
A plan of the expected inflows and outflows to and from a business over a period of time
What is a cash flow statement?
A record of the cash inflows and outflows that took place over an earlier period of time
What are the consequences of negative cash flow?
- Risk of business failure
- Risk of insolvency
What are the benefits of positive cash flow?
- Does not need to borrow money and can avoid paying interest charges
- Be able to arrange long-term loans from a greater reputation of having a postive cash flow
- Reduces risk of business failure
Why are cash flow forecasts constructed?
- Strategeic business planning
- Prevents business failure
- Allows to inform owners on future decisions
- Gives investors information on businesses
What is cash inflow?
Money that flows into a business over a specific period of time
What is cash outflow?
Money that flows out of a business over a specific period of time
What is the opening balance?
The amount of money a business starts with at the beginning of the reporting period, usually the first day of the month
What is the closing balance?
The amount of money the business has at the end of the reporting period, usually the last day of the month
How do you calculate net cash flow?
Total cash inflow - Total cash outflow
How do you calculate Closing balance?
Opening balance + Net cash flow
What are solutions to cash flow problems?
- Re-scheduling payments
- Overdrafts
- Reducing cash outflow
- Increasing cash inflow
- Finding new sources of finance
