Cashflow and working capital Flashcards
What is cashflow ?
It measures inflows and outflows / the difference between rev and cost
What are some reasons for a cashflow forecast ?
Good planning procedure
Helps set prices in line with goals
Seen by suppliers
If sales low - better marketing
How do we find net inflows ?
Total income - Total expenditure
How do we find closing balance ?
Opening balance + Net inflow
Limitations of cashflow forecasts ?
Does not consider changes in
Interest rates
Tech
Economic climate
Competitor behaviour
Only an estimate
What are some causes of cashflow problems ?
Level of sales / fall
Changes in business environment
Excess stock - paid before manufacturing
Creditors paid too quickly
Late payment from debtors
What is the problem with having too little cash ?
Cannot meet creditors requests
May need to borrow to pay / costs more money in long term
What is the problem with having too much cash ?
Wasted oppourtinity to buy more stock
If not in a bank = lost interest
Pay for loans when cash could be used
How to improve cashflow in a business ?
Increase sales / reduce price
Reduce stock levels / sell stock off
Factoring - selling off debts
Cut operating costs
lease equipment
What are the 2 ratio’s
Current and acid
How to find current ratio ?
Total assets / total liabilities
How to find acid test ?
Total assets ( less stock ) / total liabilities
