Cash flow Forecasts Terms and Formulas - IB Bus Man SL 1

cash flow

the same as working capital, the cash available for day to day expenses (utilities, wages, materials, etc)

liquidity

how easily an asset can be turned into cash

relationship between cash flow and working capital cycle

when there is too little cash, the working capital cycle will be unable to continue, and if there is too much cash it sits idle instead of being used to grow the business.

opening balance

amount of cash at the beginning of a trading period (same as the previous month’s closing balance)

cash inflows

any cash coming into the business

cash outflows

any cash leaving the business

net cash flow formula

cash inflows - cash outflows

methods of reducing cash outflows

• seeking preferential credit terms

• seeking alternative suppliers

• better stock control

• reduce expenses

• leasing rather than buying

methods of increasing cash inflows

• tighter credit control

• accepting cash payments only

• changing pricing policy

• improving product portfolio

additional sources of finance

• overdrafts

• selling fixed assets

• debt factoring

• government assistance

working capital cycle

the time difference between the firm paying cash for its costs of production and receiving cash from sales to customers

liquidity crisis

when there is insufficient cash in the working capital cycle (more cash flowing out than in)