3.5.4 Flashcards
(12 cards)
what does cash flow mean?
the movement of cash in and out of a business
- if a business has too much cash flowing out and not enough flowing in, it risks failure
what are the causes of cash flow problems?
- poor management or planning
- overtrading -> occurs when a business expands far too quickly without having the funds
- poor credit control
- inaccurate market research
what are ways to improve cash flow?
- increase revenue
- reduce costs
- extra funding
- delay payments
what can careful management of a firms cash flow help a firm to do what?
- lower borrowing costs
- reduce outflows and maximise their financial competitiveness
- strengthen supplier relationship
what are ways to improve profit?
- increase selling price
- reduce costs
- improve capacity use
- eliminate inefficiencies
what are the problems with reducing costs to improve profit?
- cheaper suppliers could mean lower quality of products -> this leads to a decrease in customer satisfaction -> firm could loose customers -> negative publicity
what are the benefits of improving capacity to improve profits?
- spreads out fixed costs over more output
- lower average costs per unit means higher profit margins
how can a business eliminate inefficiencies to improve profit?
- reduces waste and product returns by improving quality
- close unprofitable stores or product lines
-> leads to job losses
what can profitability of a business help a manager to do?
helps managers to understand if the company is efficiently making use of the utilisation of its resources and capital
what are methods to improve profitability?
- increase selling price -> depends on PED
- reduces costs -> may impact quality
what are the problems of improving cash flow and profits?
- identifying a problem may take time and any delays in recognising it may make it worse
- once the cause of the problem is found, managers will have to undertake a lengthy and detailed search into the cause of the cash flow problem
- it may damage a firm’s reputation as cutting costs may inflict negative publicity
- short term problems -> an ^ in spending on marketing and promotion raises a firms costs in the short term
