Cash flow forecasting

Question 1

What is cash flow forecasting?

Answer 1

Cash flow forecasting is the estimated value of all cash flow that a business aims to receive within a particular period of time.

Question 2

Examples of cash inflow

Answer 2

• Investment income
• Capital
• Sales of assets
• Sales of inventories
• Loan recieved
• Overdraft
• Lease
• Subsidies
• Debtors
• Donations
• Owners savings

Question 3

Examples of cash outflow

Answer 3

• Rent
• Salaries
• Taxes
• Advertising
• Dividends
• Payment to creditors

Question 4

What is the difference between profit and cash flow?

Answer 4

Cash flow is the total value of all cash generated by a business while profit is the difference between revenue and total cost/expenses.

Question 5

What are the importance of cash flow forcasting

Answer 5

• Helps business to prevent insolvency
• Helps the business to obtain external finance
• Helps the business to manage its financial objectives
• Helps the business to predict if they can pay employees and suppliers
• Helps the business to understand its market position and product portfolio
• Helps the business to set targets to compare their actual income and expenses against forecast overtime.