finance - cash flow

Question 1

What is cash?

Answer 1

The money a company can spend immediately.

Question 2

What is profit?

Answer 2

The amount of money a company earns after costs have been taken into account.

Question 3

What is cash flow?

Answer 3

The flow of all money coming into and going out of a business.

Question 4

What are cash inflows?

Answer 4

Money coming into a business.

Question 5

What are cash outflows?

Answer 5

Money going out of a business.

Question 6

What is the formula for net cash flow?

Answer 6

net cash flow = cash inflows - cash outflows

Question 7

What are reciepts?

Answer 7

Money coming into a business.

Question 8

What are payments/expenses?

Answer 8

Money going out of a business.

Question 9

What is a balance?

Answer 9

The money a business has in the bank.

Question 10

If a company has positive cash flow, are cash inflows or cash outflows higehr?

Answer 10

Cash inflows are higher.

Question 11

Can a company have negative cash flow and still make a profit?

Answer 11

Yes.

Question 12

What is an opening balance?

Answer 12

The cash a business has available at the start of the month.

Question 13

What is a closing balance?

Answer 13

The cash a business has available at the end of the month.

Question 14

What is this month’s opnening balance always equal to?

Answer 14

Last month’s closing balance.

Question 15

What is the equation which links opening balance, closing balance and net cash flow?

Answer 15

closing balance = opening balance + net cash flow

Question 16

Why is a cash flow forecast useful to a business.

Answer 16

• 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

Question 17

Give 2 consequences of poor cash flow.

Answer 17

• 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

Question 18

Give 2 of the main reasons for poor cash flow.

Answer 18

• Poor sales
• Overtrading
• Poor business decisions

Question 19

Give 3 ways a business can improve cash flow.

Answer 19

• Rescheduling payments
• Reduce cash outflows
• Overdraft
• Find new sources of finance
• Increase cash inflows