Unit 5: Chapter 23 Flashcards
Cash flow forecasting and working capital
What is cash flow?
the cash inflows and outflows over a period of time
What is the importance of cash?
it is a liquid asset
required for business to run
What is a cash inflow?
money/cash that comes into the business
sales revenue, investors, bank loan etc.
but not profit
What is a cash outflow?
cash that is spent
purchasing raw materials, paying wages/salaries etc.
What is the formula for net cash flow?
cash inflows - cash outflows
What is net cash flow?
money produced or lost by a business over a period of time
What is the cash flow cycle?
- cash needed to pay for
- materials, wages, rent etc.
- goods produced
- goods sold
- cash payment received for goods sold
What is the formula for profit?
sales - cost
What is a cash flow forecast?
estimate of future cash flows on a monthly basis
What is the importance of cash flow?
identifying cash shortages, shows monthly spending, planning, supports loan application
What are creditors?
people you owe money to
What are debtors?
people who owe you money
How can you improve cash flow issues?
speed of debtor payments, delay payments to creditors, reduce inventory
