Podcast
Questions and Answers
What can occur if a firm lacks sufficient cash to cover its obligations?
What can occur if a firm lacks sufficient cash to cover its obligations?
- Higher employee satisfaction
- Increased profits due to higher sales
- Acquisition of additional assets
- Liquidation of the business (correct)
What does cash flow primarily consist of?
What does cash flow primarily consist of?
- Cash inflows and cash outflows (correct)
- Net profit from sales
- Fixed assets and liabilities
- Investments from owners
How is net cash flow calculated?
How is net cash flow calculated?
- Opening Cash Balance - Closing Cash Balance
- Total Cash Inflow + Total Cash Outflow
- Total Cash Inflow - Total Cash Outflow (correct)
- Total Income - Total Expenses
What is a cash flow forecast utilized for?
What is a cash flow forecast utilized for?
What distinguishes cash flow from profit?
What distinguishes cash flow from profit?
What is working capital essential for?
What is working capital essential for?
What does a negative cash flow indicate for a business?
What does a negative cash flow indicate for a business?
Which of the following is a method to overcome cash flow problems?
Which of the following is a method to overcome cash flow problems?
Flashcards
Cash Flow
Cash Flow
The movement of cash into and out of a business over a period of time. It includes cash inflows (money received) and cash outflows (money paid out).
Cash Inflows
Cash Inflows
The sums of money received by a business over a period of time. These can be from sales, investments, or other sources.
Cash Outflows
Cash Outflows
The sums of money paid out by a business over a period of time. These can be for expenses like wages, rent, or supplies.
Cash Flow Forecast
Cash Flow Forecast
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Net Cash Flow
Net Cash Flow
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Working Capital
Working Capital
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Why is cash important?
Why is cash important?
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How can cash flow problems be overcome?
How can cash flow problems be overcome?
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Study Notes
Importance of Cash
- Cash is crucial for a business to operate smoothly, as it's essential for paying workers, suppliers, landlords, and government.
- Without sufficient cash, a business might need to liquidate assets (sell everything) to cover its debts.
- Adequate cash is necessary to meet all short-term payments.
Cash Flow
- Cash flow tracks a firm's cash inflows and outflows over a period.
- Cash inflows are the money a business receives.
- Cash outflows are the money a business pays out.
- Cash flow is separate from profit—profit is the total of a firm's income less costs—cash flow is about cash receipts and payments only.
Cash Flow Forecasts
- A cash flow forecast predicts future cash inflows and outflows, usually monthly.
- It estimates the expected balance at the end of each month.
- Forecasts help managers understand cash flow trends.
- The opening cash balance starts the month and is used to calculate the closing cash balance -The net cash flow is calculated by subtracting total cash outflows from total cash inflows
- The closing cash balance of one month becomes the opening balance of the next.
Uses of Cash Flow Forecasts
- To determine the expected cash position at different times.
- To anticipate potential cash flow problems.
- To identify any possible shortages or surpluses in cash.
Overcoming Cash Flow Problems
- To improve cash flow, businesses must increase inflows (e.g. sales), cut costs or attract investors in the long-term.
- Short-term measures can include seeking short-term loans, selling assets, or renegotiating payment terms with creditors.
Working Capital
- Working capital is the money a company needs for daily operations (short-term expenses).
- It encompasses liquid assets (easily converted to cash) used to pay off debts.
- Examples of working capital include cash, accounts receivables and inventory.
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Description
Explore the vital roles of cash in business operations, including cash flow tracking and forecasting. Understand how cash inflows and outflows impact a company's financial health and decision-making processes. This quiz will help you grasp essential cash management techniques critical for success.
