C1 - Managing Cash Flows Flashcards
The importance of cash flows?
- plan, monitor and control expenses
- to produce budgets
- to pay suppliers when they fall due
Difference between cash flows and profit?
- timing differences (accruals, tax and payables/receivables)
- non cash items such as depreciation and goodwill
- capital items such as dividends, acquisitions and loans
Cash flow forecasting:
Increasing asset =
Increase liabilities =
Increase asset = decrease cash
Increase liability = increase cash
Cash cycle:
5 steps:
- Inventory/materials
- Products or service
- Sale
- Trade receivables
- Cash received
What is working capital?
The part of net resources of the business that is made up of current assets minus current liabilities
4 cash cycle steps
- Inventory
- Receivables
- Cash
- Payables
Meaning of liquidity
Managing the elements in the working capital cycle so that there’s enough resources available to meet the demands of the business.
What does overtrading mean?
When a business attempts to expand its levels of trading and then has insufficient working capital and cash available to support the increased level.
Warning signs of overtrading:
- Increase in sales
- falling profit margins
- Increase in irrecoverable debts
- longer receivable days
- longer payment days
What is overcapitalisation
When a business has more resources tied up in working capital than is needed.
What is revenue receipts and payments
Receipts or payments of ongoing transactions within a company such as sales and purchases
What is capital receipts and payments
A receipt or payment of an acquisition or sale of non current asset
What is exceptional receipts and payments?
Receipts and payments of one off transactions which do not occur regularly
What is a cash flow forecast?
A cash flow forecast is an estimated sum of money you expect to flow in and out of your business and includes projected income and expenses.
Money invested into the business is shown as an increase or decrease when reconciling profit with cash (cash flow)
Increase
