Cashflow- Finance Flashcards
Define Cashflow
Cashflow is the movement of money in and out of a business
Why produce a cashflow forecast? (5)
Helps with planning and strategising if negative cashflow is suspected
Could indicate need for marketing strategies
Venture capitalists and shareholders will want the figures to determine if a business is worth investing in
Suppliers may use figures to assess if business can pay for supplies on time
Managers will use figures to adjust business practices or implement strategies as needed.
What are cashflow forecasts?
Cashflow forecasts are estimates of the likely inflows and outflows of a business over a given period of time.
What do cashflow forecasts show?
Cashflow forecasts show the amount of likely inflows and outflows as well as the approximate timings of these cash movements.
What are cashflow statements?
Cashflow statements are produced after all the transactions have occurred and are the actual figures for inflows and outflows of a business.
What are some reasons for cashflow problems? (6)
Sudden fall in sales
A change in business environment
Excess stock
Late payment from debtors.
Paying creditors too quickly.
Over trading
What are ways to improve cashflow problems? (8)
Use of liquidity ratios to assess the level of cash in a business
Reduce stock levels by selling off/buying less stock
Factoring
Leasing not buying
Loans- not large outflows all at once and allows for inflows
Change creditor and debtor days
Cut operating costs
Increase sales
On a cashflow forecast what are numbers in brackets?
Negative numbers
The closing balance for month A will be with same or different than the opening balance for month B
The same
What is the main impact of cashflow forecasts and statements?
The main impact is a measure of performance.
What are the 2 impacts of cashflow forecasts and statements on managers?
Managemnet can compare the forecast with the statement, allowing for better forecasts in the future.
It also allows managers to correct any problems.
What is one impact of cashflow statements and forecasts on employees?
Employees could judge a business’ ability to offer higher pay
How does cashflow forecasts help investment?
Lenders such as banks might ask for forecasts to assess viability of repayments being made, making lending more or less likely.
