WK5: Statement of cash flows

Question 1

What happens if inventory is damaged to cash flow forecast?

Answer 1

Recorded in cash flow statement as the value that can be sold and the remaining value will decrease inventory and increase expenses

Question 2

What is corporate governance?

Answer 2

Governance codes require for example; board members to question and challenge the executive. Company should not be a dictatorship

Similar way to which cabinet government is supposed to work

Question 3

What does a cash flow show

Answer 3

1. how well a business has generated cash
2. whether an extra long-term funding has been raised or repaid
3. whether any long-term assets have been bought or sold during the period

Question 4

What are cash flows from operating activities?

Answer 4

Arise from the normal trading activities of the business

Question 5

What are cash flows from investing activities?

Answer 5

Cash flows that arise from purchase/disposal of long term assets. This includes £ paid to purchase non-current assets and proceeds received from selling a non-current asset

Question 6

What are cash flows from financing activities

Answer 6

cash flows that alter long term financing of the company

Question 7

What is working capital

Answer 7

amount invested in short term assets of a business

Question 8

What causes a change in working capital? (3)

Answer 8

1. Increases in inventory - use up cash and hence represent an outflow of funds
2. Increases in trade receivables - deprive the business of cash and are an outflow of funds
3. Increase in trade payables - help fund the business and give rise to an inflow of funds

Question 9

Common cash payment: 3

Answer 9

Tax, interest and dividends

Amounts recorded on statement of cash flows will be the amounts actually paid out during the financial period

Payment of dividends is shown as a cashflow from financing activities

Question 10

what are the key things to look for in a statement of cash flows? 4

Answer 10

1. have cash balances increased or decreased over the course of the accounting period?
2. Can the cash generated from operations easily cover any interest, tax and dividends that have all been paid?
3. what happened to long-term funding of the company over course of accounting period
4. Is the final cash balance likely to be adequate to allow the business to operate on a day to day basis in the subsequent period

Question 11

What is liquidity

Answer 11

level of cash, bank and other liquid assets available to the business. Liquidity must be sufficient to allow company to meet its liabilities as they fall due