All Flashcards
How do you calculate Net Cash Flow
Inflow - Outflow
Define Cash Flow Forecast
Prediction of all the money coming in and out over a certain amount of time
Why do we use a Cash Flow Forecast
- To help you make decisions
- To help you predict if you have a cash surplus
- To tell you if you will have a cash deficit
Why is cash flow important
It’s important to continue day-to-day activities as well as plan for future success
Risks of not completing a cash flow forecast
- A business can not accurately plan it’s finances
- Payments to be made may be forgotten
- Payments to be received may be forgotten
- Can’t plan for any cash shortages
- May not be able to meet day-t-day expenses
- Difficult to set payments terms for customers and negotiate with suppliers.
What does ROCE (Return on Capital Employed) mean
A percentage return the business received from the money that is invested in the business
What is a Variable cost
Change depending on the output
What is a Fixed cost
Will remain the same no matter how much is produced
Give 3 examples of a variable cost
- Overtime Pay
- Machinery Maintenance
- Wage
Give 3 examples of a fixed cost
- Rent
- Interest on loans
- Raw materials
Define break-even
The point at which a business isn’t making a profit or a loss is called the break=even point. Or when revenue meets total cost
How to calculate Revenue
Money made from sales - p x q (price multiplied by quantity)
How to calculate Total cost
Fixed cost + Variable cost
How to calculate break-even
selling price - variable cost
Define Margin of safety
The difference between actual output and break-even output (Actual output - break-even output = margin of safety)
Advantages and Disadvantages of Break-even
ADV. - Quick and simple, easy to understand, helps spot potential problems
DIS ADV. - It’s only a forecast. Assuming all products are made and sold, costs may change so it’s not too reliable.
Define current ratio
The relationship between current assets and current liabilities, including the ability of a business to settle debts, by having the necessary cash available.
How to calculate current ratio
Current liabilities
Define liquid capital ratio
A measure of a company’s ability to pay it’s short term debts, excluding stock
How to calculate liquid capital ratio
current liabilities
Define trade payable day
A measure of how long it takes on average for the business to pay for suppliers it has purchased on credit
How to calculate trade payable day
costs of goods sold
