3.7 Cash flow

Question 1

cash flow definition

Answer 1

payments received by the business (inflows) and payments made by a business (outflows)

Question 2

net cash flow

Answer 2

the payments recieved by a business minus the oayments made by the business

Question 3

working capital

Answer 3

funds available in the business to meet the needs of its day to day operations. difference between current assets and current liabilities

Question 4

working capital formula

Answer 4

current assets- current liabilities

Question 5

what does current assets include

Answer 5

cash,, debtors and stock

Question 6

current liabilities include

Answer 6

creditors, overdrafts, and short term loans

Question 7

working capital cycle

Answer 7

process of turning current assets into cash that can be used to purchase the resources needed to produce a product
cash-> purchases of supplies to creditors_> production to stock inventory-> sales of product to debtors->

Question 8

cash flow forecast

Answer 8

a prediction of future cash inflows, cash outflows and net cash flow for specific time period

Question 9

opening balance

Answer 9

amount of cash the business has in the ank at the beginning of the month. if the business is new then it will not have an opening balance, so this figure would be zero

Question 10

closing balance

Answer 10

refers to the amount of cash that the business has to the end of the month. it is the sum of the opening balance and the net cash flow. this closing balance then becomes the opening balance for the next month

Question 11

closing balance formula=

Answer 11

opening balance + net cash flow for the month

Question 12

investment

Answer 12

spending by a business on non current( fixed) assets; also known as capital expenditure

Question 13

why is having excess free cash flow good

Answer 13

allows public companies to buy back there own shares or distribute investors

Question 14

positive profit margin

Answer 14

the business should be able to cover its costs of prroduction and operation

Question 15

debtor days

Answer 15

a measure of the average number of days it takes a business to collect its debts

Question 16

debtor days formula

Answer 16

debtors/sales revenue x 365

Question 17

creditor days

Answer 17

a measure of the average number of days it takes a business to pay its debts

Question 18

creditor days formula

Answer 18

creditors/cost of sales x 365

Question 19

reasons for poor cash flow

Answer 19

• poor stock management: holding too much stock, spending too much
• poor pricing strategy or low sales
• expanding too fast: business may invest and spend on expansion too quickly
• high expenses
• seasonal demand

Question 20

why do non prodit social enterprises vulnurable

Answer 20

they rely on grants and doonatons which are unstable

Question 21

effective debt collection (improving cash flow)

Answer 21

must make frequent phone calls and emails to make sure debtors pay on time. this could result in loss in clients. plus they must make credit check on customers

Question 22

how to improve cash flow

Answer 22

effective debt collection
cash transactions only
increased promotion
expanding product portfolio
going public
overdrafts
loans
government assistance
sales of assets

Question 23

cash transactions only (improving cash flow)

Answer 23

reduce credit transactions, may lose customers

Question 24

increased promotion (improving cash flow)

Answer 24

company could implement new promotion strategies like advertisement to increase sales- could be costly

Question 25

expanding product portfolio (improving cash flow)

Answer 25

diversifies risk and increases revenye from wider range of products- could require cash outflows

Question 26

going public (improving cash flow)

Answer 26

public held companies allow portion of ownership to outside investors through sales of shares

Question 27

overdrafts (improving cash flow)

Answer 27

allow bysiness to draw out money- disadvatage due to interest

Question 28

loans (improving cash flow)

Answer 28

borrowing from bank, however interest and terms could be changed

Question 29

government assistance (improving cash flow)

Answer 29

government could grand subsidies to companies that produce essential goods and services + low interest loans

Question 30

sale of non- current (fixed) asset (improving cash flow)

Answer 30

increase cash inflow by selling some of its disused non current assets such as old machinery. not stable cash inflow

Question 31

how can non profit social enterprises (improving cash flow)

Answer 31

- campaign to increase donations - promote subscription based donations - research and apply additional grants - use crowdfunding

Question 32

reducing cash outflow

Answer 32

better stock management renegotiate credit terms- extensions for payment switch to cheaper suppliers reduce expenses- like staff parties electricity, could lower productivity lease equipment- smaller monthly payments