CASH FLOW FORECASTS

Question 1

What is cash inflow?

Answer 1

• cash coming into the business during a period of time, e.g:
• Borrowing
• Sales revenue
• Sale of assets
• Payment by debtors

Question 2

What is cash outflow?

Answer 2

• cash coming out of the business over a period of time, e.g.
• Wages
• Interest
• Paying creditors
• Purchasing raw materials

Question 3

Why cash is important

Answer 3

• Most liquid asset
• No cash then:
  Unable to pay workers
  Production Stops
  Liquidation - selling everything owned
• Needed to pay expenses and other costs

Question 4

Causes of cash flow problems

Answer 4

• Purchasing excessive and expensive assets
• Credit period may be too long
• Expanding too quickly

Question 5

What is a cash flow forecast

Answer 5

estimate for future cash inflows and outflows over a period of time (normally monthly basis)

Question 6

Net cash flow define

Answer 6

Cash inflows - cash outflows

Question 7

Closing Balance define

Answer 7

Opening Balance + net cash flow

Question 8

How to deal with negative cash balance

Answer 8

• arrange trade credit with supplier
• ask customers to pay their receivables earlier
• Borrow (loan)
• Delay/cancel purchases
• Sell non-current assets
• Overdraft

Question 9

Benefits of cash flow forecasting

Answer 9

• Good planning tool to avoid future problems
• Can help secure lans
• Helps decide optimal time to make purchases
• Can identify causes of cash flow problems
  Helps manage cash flow better

Question 10

Working capital cycle

Answer 10

• time between buying raw materials and making revenue from the product

Length of this cycle depends on:

• Inventory levels
• How quick suppliers are paid
• How quickly buyers are found
• Credit period length

Can improve working capital cycle by:

• Reducing inventory levels
• Longer credit terms with supplier
• reducing customers credit period