Cash Flow Forecasts

Question 0

Profit vs. Operational Cash Flow

Answer 0

Profit = Sales - Cost of Sales

Operational Cash Flow = Cash received - Cash paid from trading

Question 1

What is the role of forecasts?

Answer 1

Estimate how much cash is required.
When it is required.
How long it is required
Whether it will be available from anticipated sources

Question 2

Explain the 6 steps of the cash budget approach

Answer 2

1. Identify starting cash position
2. Sort out cash receipts from receivables
3. Establish when other cash income will be received and when
4. Sort out cash payments in the month
5. Establish cash payments in the month
6. Set out the cash budget month by month

Question 3

How does one prepare a pro forma cash budget?

Answer 3

1. Calculate cash receipts
   = receipts from customers + loans
2. Calculate cash payments
   = payments to suppliers + wages
3. Calculate net cash flow
   = receipts - payments
4. Closing balance
   = opening balance - net cash flow