document that shows predicted flow of cash in + out of business over a given period of time - usually 12 months
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opening balance
amount of cash available in business at start of a set time period
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closing balance
amount of cash available in business at end of set time period - e.g. a month
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liquidity
measures a firms ability to meet short-term cash payments
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insolvent
when a firm is unable to meet short-term cash payments
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without cash what problems can arise?
late bill payments, no stock, unhappy employees
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structure of the cash flow
- opening balance - income/total income - total expenses - net cash flow - closing balance
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inflow
the cash 'flowing' into the business e.g. sales, loans and owners capitals
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outflow
cash flowing out of the business e.g. bills, purchases, insurance, overdraft interest
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closing balance equation
opening balance + inflows - outflows
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2 benefits of cash flow forecasts
-plans for the future inflows + outflows - can lead to corrective action - can spot possible problems before they arise - can be used as evidence for future cash flows if applying for a loan + potential investors - shows financial performance
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2 limitations of cash flow forecasts
- only an estimate - not everything is taken into consideration (economic factors, competition) - cant always plan for cost increases - can be manipulated for the benefit of owners
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Other cards in this set
Card 2
Front
opening balance
Back
amount of cash available in business at start of a set time period
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