Cash flow forecasting
9 flashcards to master Cash flow forecasting
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Define 'cash flow'.
Cash flow refers to the movement of money into and out of a business over a period of time. It's crucial for short-term survival and solvency. A positive cash flow means more money is coming in than going out.
Give examples of typical 'cash outflows' for a business.
Cash outflows are payments made by the business. Examples include payments to suppliers, wages, rent, marketing expenses, and loan repayments.
Explain the difference between 'net cash flow', 'opening balance', and 'closing balance'.
Net cash flow is the difference between total cash inflows and total cash outflows for a period. Opening balance is the amount of cash a business has at the beginning of the period. Closing balance is the amount of cash at the end of the period; it is the opening balance plus the net cash flow.
What is 'overtrading' and how does it cause cash flow problems?
Overtrading occurs when a business expands too quickly without sufficient capital. This can lead to cash flow problems because the business invests heavily in assets and inventory but does not generate enough immediate revenue to cover costs.
Topic: 5.2 Cash flow forecasting. Question: A business has an opening balance of $7,000. Inflows are $15,000 and outflows are $11,000. Calculate the closing balance.
The net cash flow is $15,000 - $11,000 = $4,000. The closing balance is the opening balance plus the net cash flow, so $7,000 + $4,000 = $11,000. A business might use this calculation to project cash flow during expansion,
Key Questions: Cash flow forecasting
Define 'cash flow'.
Cash flow refers to the movement of money into and out of a business over a period of time. It's crucial for short-term survival and solvency. A positive cash flow means more money is coming in than going out.
Explain the difference between 'net cash flow', 'opening balance', and 'closing balance'.
Net cash flow is the difference between total cash inflows and total cash outflows for a period. Opening balance is the amount of cash a business has at the beginning of the period. Closing balance is the amount of cash at the end of the period; it is the opening balance plus the net cash flow.
What is 'overtrading' and how does it cause cash flow problems?
Overtrading occurs when a business expands too quickly without sufficient capital. This can lead to cash flow problems because the business invests heavily in assets and inventory but does not generate enough immediate revenue to cover costs.
About Cash flow forecasting (5.2)
These 9 flashcards cover everything you need to know about Cash flow forecasting for your Cambridge IGCSE Business Studies (0450) exam. Each card is designed based on the official syllabus requirements.
What You'll Learn
- 5 Definitions - Key terms and their precise meanings that examiners expect
- 3 Key Concepts - Core ideas and principles from the 0450 syllabus
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After mastering Cash flow forecasting, explore these related topics:
- 5.1 Business finance: needs and sources - 10 flashcards
- 5.3 Income statements - 9 flashcards
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