3.7 cash flow Flashcards
(22 cards)
What is the primary difference between profit and cash flow?
Profit is the surplus of revenues over costs during a trading period, while cash flow is the movement of cash into and out of a business over time.
What is cash flow?
Cash flow refers to the movement of cash into and out of a business over a period of time.
Why is cash considered a business’s most liquid asset?
Cash includes notes, coins, and funds held in the bank, making it readily available for transactions.
What are cash inflows?
Cash inflows are the movement of cash into a business, typically from selling products.
What are cash outflows?
Cash outflows are the movement of cash out of a business, such as payments for supplies.
What is net cash flow?
Net cash flow is the balance between cash inflows and outflows over a specific period, usually one month.
What are the components of a cash flow forecast?
- Opening balance 2. Cash in 3. Cash out 4. Net monthly cash flow 5. Closing balance.
What is one cause of cash flow problems related to financial planning?
Inadequate financial planning can result in sales revenue falling short of expectations.
How can weak credit control lead to cash flow problems?
Weak credit control can result in bad debts from customers who are unable to pay.
What impact does excessive inventory have on cash flow?
Excessive inventory ties up cash in unsold products, affecting liquidity.
What is overtrading and how does it affect cash flow?
Overtrading occurs when a business expands too quickly, leading to increased cash outflows without matching inflows.
How can negotiating extended trade credit help manage cash flow?
It allows businesses to secure longer payment terms with suppliers, delaying cash outflows.
What is one strategy to increase cash inflows by adjusting pricing?
Increasing prices on unique or brand-loyal products can boost profit margins.
How can offering discounts for early payment improve cash flow?
It encourages faster payment from customers, thus speeding up cash inflow.
What is debt factoring?
Debt factoring is a service that manages and collects payments from debtors more efficiently.
What is one method businesses can use to seek additional finance?
Businesses can use bank financing, such as loans or overdrafts, to address liquidity issues.
What is a non-traditional funding source for improving cash flow?
Pursuing sponsorships or donations can provide additional cash flow, though they are not typically accessible.
What is a potential extreme measure for raising cash?
Selling non-essential assets, such as art, can raise cash in critical situations.
What is the role of marketing in cash flow management?
Enhancing marketing efforts can increase customer attraction, raise brand awareness, and enhance loyalty, leading to higher cash inflows.
What is the significance of shortening credit periods for cash flow?
Shortening credit periods can improve cash flow by requiring customers to pay sooner.
What is the effect of seasonal demand variations on cash flow?
Fluctuations in demand can affect sales, leading to cash flow problems.
How can poor cost management lead to cash flow issues?
When production costs exceed the budget, it can create cash flow problems.
