Financial Information and Decisions

Flashcards covering key concepts related to financial information and decisions, focusing on cash flow management, working capital, and related financial terminology.

Cash Flow Forecasting

An estimation of future cash inflow and outflow for each month that shows the expected cash balance at the end of the month.

Working Capital

The capital available to a business in the short term to pay for day-to-day expenses; calculated as current assets minus current liabilities.

Cash Inflow

Money received by a business, which can come from sales of products, payments from customers, borrowing, or investment.

Cash Outflow

Money paid by a business, typically for expenses such as purchasing goods, paying salaries, and repaying loans.

Liquidity Crisis

A situation where a business does not have enough cash to pay for its expenses and obligations, potentially forcing it out of business.

Profit vs. Cash Flow

Profit is calculated as sales revenue minus total costs, while cash flow is the difference between cash inflow and cash outflow.

Debtors

Individuals or entities that owe money to the business, usually as a result of credit sales.

Creditors

Individuals or entities to whom the business owes money, typically for goods or services received.

Cash Flow Cycle

The stages between paying out cash for labor and materials and receiving cash from the sale of goods.

Insolvency

A financial state in which a business cannot pay its debts when they are due, often resulting in bankruptcy.

Fixed Assets

Long-term tangible assets that a business uses in its operations to generate income, such as property and equipment.

Equity Financing

Raising capital through the sale of shares in the business, which does not require repayment but may dilute ownership.

Short-Term Solutions to Cash Flow Problems

Strategies such as increasing bank loans, delaying payments, or asking debtors for quick payment to improve cash flow temporarily.

Long-Term Solutions to Cash Flow Problems

Strategies like attracting new investors, cutting costs, or developing new products to improve cash flow sustainably.

Cost of Sales

The direct costs attributable to the production of goods sold by a company, usually including labor and materials.

Overtrading

When a business expands its operations too quickly without sufficient cash flow to support increased activity.