cash flow forecasting and working capital Flashcards
1
Q
uses of cash
A
- day to day costs
- buying inventories
2
Q
cash inflow comes from
A
- sale of products
- sale of assets
- borrowed money
- investors’ money
3
Q
cash outflow goes from
A
- purchasing goods/components/raw materials using cash
- paying bills, rents, wages etc
- purchasing non-current assets
- repaying loans
- paying creditors/accounts payable
4
Q
what is the cash flow cycle
A
cash needed to pay for —> materials, wages rent etc —> goods produced —> goods sold —> cash payment for goods sold
5
Q
problems of not having enough cash
A
- cannot pay bills and workers
- production will stop
- forced into liquidation (selling everything it owns to pay its debts)
6
Q
importance of cash flow forecasts
A
- starting a new business
- obtaining a bank loan
- managing cash flow to avoid running out of cash
- reduce need for an overdraft
- helping managers plan ahead
7
Q
short term solutions to cash flow problems
A
- delay payments to suppliers
- ask debtors/accounts receivable to pay more money
- delay or cancel the payment of capital equipment
- take out a bank loan/overdraft
8
Q
long term solutions to cash flow problems
A
(may increase short term costs)
- attract new investors
- cut costs
- increase efficiency
- develop new products to attract more sales
- find more ways to increase revenue
9
Q
working capital
A
current assets - current liabilities
10
Q
importance of profit
A
- rewards entrepreneur
- rewards risk taking
- retained profit is a source of finance
- indicator of success
- attracts investors
