5 - Cash And Cash Flow

Question 1

What is meant by “cash” in business terms?

Answer 1

Money a business can spend immediately

Question 2

What is meant by “cash flow”?

Answer 2

Money coming in and out of a business

Question 3

What is managed by cash flow?

Answer 3

Timings of cash transfers

Question 4

What is meant by a “cash inflow”?

Answer 4

Cash coming into a business

Question 5

What is meant by a “cash outflow”?

Answer 5

Cash going out of a business

Question 6

What is the formula for a “net cash flow”?

Answer 6

Cash Inflows - Cash Outflows

Question 7

What is meant by an “Opening Balance”?

Answer 7

The cash a business starts to trade with

Question 8

What problem will a low opening balance create?

Answer 8

Liquidity problem

Question 9

What is meant by a “Closing Balance”?

Answer 9

Cash a business finishes with after trading

Question 10

What is meant by a “cash flow forecast”?

Answer 10

A business’s prediction of money coming in and out over a period of time

Question 11

What will businesses estimate all the possible sources of in a cash flow forecast?

Answer 11

Cash inflows and outflows

Question 12

In what 2 ways are cash inflows and outflows forecasted by a business?

Answer 12

Past data

Market research

Question 13

Why is it important for businesses to forecast cash flows accurately?

Answer 13

To avoid liquidity problems

Question 14

What is meant by a “liquidity problem”?

Answer 14

When a business runs out of cash in the short-term

Question 15

What 2 things won’t a business be able to afford with a liquidity problem?

Answer 15

Rent

Wages

Question 16

How can a business solve a liquidity problem?

Answer 16

Reduce cash outflows and increase cash inflows

Question 17

What happens if a business has persistent negative cash flows?

Answer 17

It won’t be sustainable

Question 18

What 3 things won’t a business be able to pay for with negative cash flows?

Answer 18

Salaries
Rent
Raw materials

Question 19

Who does negative cash flow have a short-term consequence for?

Answer 19

Stakeholders

Question 20

Who won’t a firm be able to pay if it runs out of cash?

Answer 20

Its employees

Question 21

What will be negatively impacted if an employee is worried about cash? What might they leave?

Answer 21

Their employee motivation

The firm

Question 22

What is meant by “creditors”?

Answer 22

People or organisations who have loaned a business money

Question 23

Who won’t a business be able to afford to pay back if it runs out of cash?

Answer 23

Creditors

Question 24

What might businesses not be able to take out if it can’t pay creditors?

Answer 24

Loans

Question 25

What rates might increase if a business owes money to creditors?

Answer 25

Interest rates

Question 26

What happens if a business runs out of cash to pay suppliers with?

Answer 26

A temporary halt in production

Question 27

What relationship might be damaged if a temporary halt in production takes place?

Answer 27

Suppliers and the business

Question 28

What could a business reschedule to solve cash flow problems?

Answer 28

Cash payments

Question 29

How could a business delay a payment to suppliers?

Answer 29

Trade credit

Question 30

What payment could be delayed to suppliers with a positive cash flow?

Answer 30

Suppliers' payment

Question 31

What problem can a business overcome by finding new sources of finance?

Answer 31

Liquidity problems

Question 32

What could be increased to increase cash inflows?

Answer 32

Sales

Question 33

Who could businesses chase up to increase cash inflows?

Answer 33

Customers who owe money

Question 34

What could a business sell to increase cash inflows?

Answer 34

Assets

Question 35

What can a business try to reduce to solve a liquidity problem?

Answer 35

Cash outflows

Question 36

What can a business delay to reduce cash outflows?

Answer 36

Payment of bills

Question 37

What are 2 ways a business can delay bill payments?

Answer 37

Change the dates | Secure trade credits

Question 38

Why are forecasts useful when a cash shortfall is predicted?

Answer 38

They can adjust their cash payments

Question 39

What do overdrafts allow for businesses to have in the short-term?

Answer 39

A negative current account balance

Question 40

What do banks provide to plug a short-term lack of cash?

Answer 40

"Bridging finance"