Cash Flow Forecasting

Question 1

What is cash flow

Answer 1

Money that enters and leaves a business as it makes and receives payments

Question 2

What is a cash flow forecast

Answer 2

States the inflows and outflows of cash that managers expect over a future time period

Question 3

What is net cash flow

Answer 3

The net result of cash flows/inflows and cash outflows each month

Question 4

How do you measure net cash flow

Answer 4

Cash inflows - cash outflows

Question 5

What is opening and closing balance

Answer 5

Opening balance: how much a business has at the start of each month

Closing balance: how much the business has at the end of each month

Question 6

Factors affecting cash flows

Answer 6

1. Transaction types
2. timing of cash flow
3. Nature of business

Question 7

When a business is owed money customers is referred to as

Answer 7

Receivables

Question 8

What are payables

Answer 8

When a business owes money to suppliers

Question 9

What are some cash flow problems

Answer 9

1. Businesses need to have sufficient cash to meet day to day finances
2. Insufficient liquid cash funds may lead to and inability to meet short term debts

Question 10

Causes of cash flow problems

Answer 10

1. Credit sales
2. Over trading
3. Seasonality
4. Unexpected events

Question 11

What’s the use of cash flow forecasts

Answer 11

1. Identify the timings and significance of any potential shortfalls
2. Identify possible corrective action
3. Help secure finance from potential investors
   Give confidence about short term survival