Cash Flow and Working Capital

A collection of vocabulary flashcards based on the key concepts related to cash flow forecasting and working capital.

Cash Flow

The total amount of money being transferred into and out of a business.

Cash Flow Forecast

A financial tool that estimates a business's future cash inflows and outflows over a specific period.

Liquidity

The availability of liquid assets to a business; crucial for meeting short-term obligations.

Working Capital

The difference between a company's current assets and current liabilities, indicating its ability to cover short-term obligations.

Net Cash Flow

The difference between total cash inflows and total cash outflows over a specified period.

Current Assets

Assets that are expected to be converted into cash within one year, such as cash, accounts receivable, and inventory.

Current Liabilities

Obligations due to be paid within one year, including accounts payable and short-term debts.

Positive Working Capital

Indicates that a business can cover its short-term liabilities and suggests financial health.

Negative Working Capital

Suggests a business may struggle to meet short-term obligations, indicating potential liquidity issues.

Cash Inflows

Money received by a business from various sources, such as sales, loans, and investments.

Cash Outflows

Payments made by a business for expenses like rent, salaries, and inventory.

Cash Shortage Consequences

Inability to pay suppliers and employees, damaged reputation, increased borrowing costs, and potential bankruptcy.

Cash Conversion Cycle

The time it takes to convert inventory into cash through sales, affecting working capital.

Forecasted Cash Shortfall

An anticipated negative cash balance that a business may face in the future.

Short-term Financing Options

Methods to secure quick cash, including bank overdrafts, short-term loans, and credit lines.

Identifying Cash Flow Problems

Recognizing early warning signs of cash flow issues, such as increasing debt and delayed payments.

Adjustments in Cash Flow Forecasting

Modifications made to a forecast based on sales variations, unexpected expenses, or changing financial conditions.

Investment Opportunities

Potential projects or acquisitions a business can pursue when sufficient cash is available.

Early Payment Discounts

Promotional discounts offered to customers for paying invoices ahead of the due date.

Operating Expenses

Regular costs necessary for a business to maintain daily operations, such as salaries and rent.