Cash Flow Forecasting

Question 1

what is cash flow

Answer 1

The cash inflows and outflow over a period of time

Question 2

What is cash inflow

Answer 2

Sums of money received by a business during a period of time

Question 3

What is cash outflows

Answer 3

Sum of money paid out by a business during a period of time.

Question 4

Examples of cash inflows

Answer 4

• Sale of products for cash
• Payments made by debtors
• Borrowing money
• The sale of assets of the business
• Investors (money into business)

Question 5

Examples of cash outflows

Answer 5

Purchasing goods/materials for cash
Paying wages/salaries/other expenses
Purchasing non-current assets
Repaying loans
Paying creditors of the business

Question 6

What does the cashflow cycle show

Answer 6

Shows The stages between paying out cash for labour/materials etc.. and receiving cash from the sale of goods.

Question 7

Define profit

Answer 7

The surplus after total costs have been subtracted from revenue.

Question 8

Define Insolvency

Answer 8

When a debtor cannot pray the debts they owe

Question 9

How can profitable businesses run out of cash

Answer 9

• allowing customers too long a credit period
• purchasing too many noncurrent assets at once
• expanding too quickly and keeping a high inventory level

Question 10

What is a cash flow forecast

Answer 10

Is an estimate of future cash inflows and outflows of a business , usually on a month by month basis .
Then shows the expected cash balance at the end of each month.

Question 11

What will cash flow forecast tell the manager :

Answer 11

Future cash position of the business.
How much cash is available for paying bills/repaying loans/buying fixed assets .
How much cash the bank might need t to lend to the business in order to avoid insolvency.
Whether the business is holding too much cash which could be put to a more profitable use.

Question 12

Uses of cash flow forecast

Answer 12

Starting up a business
Running a existing business
Keeping the bank manager informed
Managing cash flow

Question 13

What is Net cash flow

Answer 13

The difference , each month , between inflows and outflows

Question 14

What is closing cash/bank balance

Answer 14

Amount of cash held by the business at the end of each month .
And becomes the next months opening cash balance .

Question 15

Opening cash/bank balance

Answer 15

Amount of cash held by the business at the start of the month

Question 16

Ways to overcome short term cash flow problem

Answer 16

Increasing banks loans.
Delay payments to suppliers.
Asking debtors to pay more quicker.
Delay/cancel purchases of capital equipment.

Question 17

How to overcome a long term cash flow problem

Answer 17

Attracting new investors
Cutting down costs & increasing efficiency
Developing new products