5.23 Cash flow forecasting and working capital

What does it mean when we say that cash is a "liquid asset?"

• It can be used to pay for debts

• It is hard for a business to acquire

• It is immediatelty available for spending

• It has little to no value

Which of the following is/are cash INFLOWS? (multiple answers possible)

• Sale of assets

• Purchasing goods and materials

• Repaying loans

• Paying salaries

Which is/are examples of cash OUTFLOWS? (multiple answers possible)

• Paying creditors of the business

• Payments made by debtors

• Borrowing money

• Purchasing fixed assets

Which of the following explains why cash does not return immediately to the business after a sale?

• Profit/loss accounts

• Income statements

• Statement of financial position

• Cash flow cycle

Given the following table, recording a business' transactions for one month, calculate gross profit and net cash flow at the end said month.
(Answer as follows:
profit, net cash flow)

If a profitable business runs out of cash, what is that situation called?

• Insolvency

• Trade credit

• Cash flow forecast

• Closing bank balance

What is the Net Cash Flow for each month? (values in brackets are negative)

• January: 75 000
  February: 125 000
  March: 85 000

• January: 55 000
  February: 95 000
  March: 90 000

• January: 5 000
  February: 20 000
  March: -10 000

• January: 5 000
  February: -20 000
  March: 10 000

What is the closing bank balance for a business in, for example, January?

• Amount of cash held by the business at the beginning of January

• Amount of cash held by the business at the end of January

• The opening bank balance for February

• Amount of cash earned by the business throughout January

In which of the following situations are cash flow forecasts useful? (multiple answers possible)

• Keeping bank managers informed after taking out a loan

• Running a business

• Managing cash flow

• Starting up a business

Imagine you are the manager of a business who has a short-term cash flow problem. If your business:
- is low on profits

• - is in a competitive market where up-to-date equipment is absolutely necessary, and most competitors offer trade credit
  - has good relations with their suppliers
  How would you solve the short-term cash flow problem?

• Asking customers to pay more quickly

• Delaying payments to suppliers

• Increasing bank loans

• Delaying the purchases of capital equipment