cash flow
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Cash flow. THE TIMES 100. Cash is notes, coins and bank deposits that provide firms with the spending power to pay their bills and expenses. What is cash?. Cash flow refers to the flows of cash both into and out of a business - PowerPoint PPT PresentationTRANSCRIPT
Cash flowCash flow
THE TIMES 100
THE TIMES 100
What is cash?What is cash?
Cash is notes, coins and bank deposits that provide firms with the spending power to pay their bills and expenses
THE TIMES 100
Cash flowCash flow
Cash flow refers to the flows of cash both into and out of a business
Cash inflows are payments into a firm from customers or other sources
Cash outflows refer to payments made by a business
Net cash flow=cash inflow–cash outflow
THE TIMES 100
Cash flow forecastingCash flow forecasting
Cash inflows result from:Cash sales from customersPayments from debtorsCash from other sources such as bank
loansCash outflows result from:Paying overheads such as rent & wagesPaying for raw materials & other variable
costs
THE TIMES 100
Cash flow forecastingCash flow forecasting
A cash flow forecast will include:Cash inflows (receipts)Cash outflows (payments)Net cash flow (inflows minus outflows)Opening balance (this is the same as
the closing balance of the previous period)Closing balance (opening balance
combined with net cash flow)
THE TIMES 100
Cash flow forecastingCash flow forecasting
Jan Feb March April May June
Cash inflows
£17,000 £18,500 £19,000 £19,800 £21,000 £18,900
Cash outflows
£14,300 £15,100 £24,900 £16,300 £17,800 £24,800
Net cash flow
£2,700 £3,400 (£5,900) £3,500 £3,200 (£5,900)
Opening balance
£2,200 £4,900 £8,300 £2,400 £5,900 £9,100
Closing balance
£4,900 £8,300 £2,400 £5,900 £9,100 £3,200
THE TIMES 100
Importance of cash flow Importance of cash flow forecastingforecasting
To identify periods of cash shortfall so action can be taken to deal with this
To identify periods of cash surplus so expenditure can be planned
To secure additional funding, for example, from a bank
THE TIMES 100
Consequences of cash flow Consequences of cash flow problemsproblems
If a firm does not have the cash to pay its debts:
Relationships with suppliers may deteriorate
Workers may leaveIt may have to cease trading
In the short-term CASH is considered to be more important than PROFIT
THE TIMES 100
Causes of cash flow problemsCauses of cash flow problems
Poor planningExternal factors e.g. the credit crunchInadequate credit controlHolding excessive stockInvesting too heavily in fixed assetsOvertrading – expanding quicker than
available funds allow
THE TIMES 100
Improving cash flowImproving cash flow
In simple terms, cash flow can be improved by:
Increasing, or speeding up, cash inflows
Decreasing, or slowing down, cash outflows
THE TIMES 100
Methods of improving cash flowMethods of improving cash flow
Increase & speed up cash inflows
Decrease & slow down cash outflows
Overdraft or bank loan Delay paying creditors
Debt factoring Delay unnecessary capital spending
Sale of assets or ‘sale & leaseback’
Lease rather than buy
Shorten credit terms for customers & chase up debts
Reduce spending on expenses e.g. negotiate lower rent
THE TIMES 100
Cash v profitCash v profit
Do not confuse cash and profit
The receipt of cash may not coincide with an associated sale, for example:
An item may be bought on credit and paid for at a later date
A bank loan may be taken out causing a positive cash flow, but no sales have been made
THE TIMES 100
Cash flow in contextCash flow in context
THE TIMES 100
Fill the gapsFill the gaps
January February
March
Cash inflow £10,000 £11,000 ?
Cash outflow £9,000 £11,500 £10,800
Net cash flow £1,000 ? £400
Opening balance ? £1,600 £1,100
Closing balance £1,600 £1,100 £1,500What are the missing figures?
Use the CIMA case study to help you
THE TIMES 100
Controlling cashControlling cash
Management accountants deal with a range of issues related to controlling cash in organisations. Give examples of these activities.
Use the CIMA case study to help you
THE TIMES 100
Managing cash shortfallsManaging cash shortfalls
Trained management accountants will forecast when there may be possible cash shortfalls and have strategies in place to deal with these. What might a business do if a possible shortfall has been forecast, to ensure it can pay its creditors?
Use the case study to help you.
THE TIMES 100
Effective forecastingEffective forecasting
Organisations operate within dynamic business environments so management accountants must take a range of external factors into account when forecasting cash flow. Give examples of changes that may affect cash flow forecasts.
Use the CIMA case study to help.
THE TIMES 100
Useful resourcesUseful resources
Cash flow lesson suggestions and activities (The Times 100)
CIMA case study (The Times 100)CIMA website