Podcast
Questions and Answers
What is the primary calculation required to determine net cash flow?
What is the primary calculation required to determine net cash flow?
- Subtracting cash outflows from cash inflows (correct)
- Multiplying cash inflows by cash outflows
- Dividing cash inflows by cash outflows
- Adding cash inflows and cash outflows
If a business has total cash inflows of $100,000 and total cash outflows of $120,000, what is the net cash flow?
If a business has total cash inflows of $100,000 and total cash outflows of $120,000, what is the net cash flow?
- -$20,000 (correct)
- $220,000
- $10,000
- $20,000
Which of the following is considered a cash outflow for a business?
Which of the following is considered a cash outflow for a business?
- Payment made for advertising expenses (correct)
- Money received from a bank loan
- Interest earned on investments
- Sales revenue
Which scenario best illustrates a cash inflow for a company?
Which scenario best illustrates a cash inflow for a company?
If a company has a positive net cash flow, this indicates that:
If a company has a positive net cash flow, this indicates that:
Why is cash considered the 'lifeblood' of a business?
Why is cash considered the 'lifeblood' of a business?
Which of the following best describes the function of cash in a business?
Which of the following best describes the function of cash in a business?
What is the key difference between profit and cash?
What is the key difference between profit and cash?
Why might a business be profitable yet still face financial difficulties?
Why might a business be profitable yet still face financial difficulties?
What is MOST likely to happen to a cash-poor business?
What is MOST likely to happen to a cash-poor business?
Flashcards
Profit
Profit
The difference between the total revenue generated and all expenses incurred during a specific period. It indicates a company's financial health and sustainability.
Cash
Cash
The most liquid form of asset held by a business, including physical cash and bank deposits. It is essential for covering daily operational needs.
Cash-poor Business
Cash-poor Business
A situation where a business generates a profit but lacks sufficient cash to meet its immediate financial obligations. It can lead to a breakdown in operations.
Trade Credit
Trade Credit
Signup and view all the flashcards
Cash-rich Business
Cash-rich Business
Signup and view all the flashcards
Cash Inflows
Cash Inflows
Signup and view all the flashcards
Cash Outflows
Cash Outflows
Signup and view all the flashcards
Net Cash Flow
Net Cash Flow
Signup and view all the flashcards
Study Notes
Cash Flow in Business
- Cash is crucial for a business's survival; without it, insolvency is likely.
- Cash is the most liquid current asset, including notes, coins, and bank deposits.
- Cash covers essential operating expenses (e.g., wages, supplies, rent, utilities).
- It also addresses unexpected costs (e.g., equipment replacement).
- New businesses often pay cash for supplies until they establish credit.
- Suppliers may grant 30-60 days' credit.
- Cash inflows result from sales revenue.
- Cash outflows are payments to suppliers, wages, loan repayments, and expenses.
Profit vs. Cash
- Profit and cash are distinct financial measures.
- Profit reflects revenue minus costs during a specific period.
- Profit indicates financial health and operational effectiveness.
- Cash considers all inflows and outflows (sales, expenses, investments, loans).
- A profitable business can still fail if it lacks cash.
- Example: Joules, despite profit, liquidated due to cash flow issues.
Cash Inflows and Outflows
- Cash inflows are funds entering the business (sales, loans, owner's capital, investments).
- Cash outflows are funds leaving the business (supplier payments, wages, loan repayments, advertising).
- Net cash flow is the difference between inflows and outflows during a period.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
