finance - cash flow Flashcards
What is cash?
The money a company can spend immediately.
What is profit?
The amount of money a company earns after costs have been taken into account.
What is cash flow?
The flow of all money coming into and going out of a business.
What are cash inflows?
Money coming into a business.
What are cash outflows?
Money going out of a business.
What is the formula for net cash flow?
net cash flow = cash inflows - cash outflows
What are reciepts?
Money coming into a business.
What are payments/expenses?
Money going out of a business.
What is a balance?
The money a business has in the bank.
If a company has positive cash flow, are cash inflows or cash outflows higehr?
Cash inflows are higher.
Can a company have negative cash flow and still make a profit?
Yes.
What is an opening balance?
The cash a business has available at the start of the month.
What is a closing balance?
The cash a business has available at the end of the month.
What is this month’s opnening balance always equal to?
Last month’s closing balance.
What is the equation which links opening balance, closing balance and net cash flow?
closing balance = opening balance + net cash flow
Why is a cash flow forecast useful to a business.
- It predicts when they might encounter a liquidity problem (lack of cash)
- The business can take out a short-term source of finance to resolve this
Give 2 consequences of poor cash flow.
- Business doesn’t have enough cash to meet day-to-day expenses
- Staff may not get paid on time
- Can’t take advantage of prompt payment discounts from suppliers
- Creditors may not get paid on time
Give 2 of the main reasons for poor cash flow.
- Poor sales
- Overtrading
- Poor business decisions
Give 3 ways a business can improve cash flow.
- Rescheduling payments
- Reduce cash outflows
- Overdraft
- Find new sources of finance
- Increase cash inflows
