3.7 Cash flow
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24 Terms
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Liquidation
________: when a firm ceases trading and its assets are sold for cash.
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Insolvent
________: when a business can not meet its short- term debts.
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Current liabilities
________: debts of the business that will usually have to be paid within one year.
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Current assets
Working capital= ________- Current liabilities.
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Liquidation
when a firm ceases trading and its assets are sold for cash
6
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Insolvent
when a business cannot meet its short-term debts
7
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Net cash flow
sum of cash payments to a business (inflows) less the sum of cash payments made by it (outflows)
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Cash outflows
payments in cash made by a business, such as those to suppliers and workers
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Cash inflows
payments in cash received by a business, such as those from customers (debtors) or from the bank, e.g
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Working capital = Current assets
Current liabilities
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Current assets
stocks, debtors (= customers who have bought products on credit and will pay cash at an agreed date in the future) and cash
12
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Current liabilities
debts of the business that will usually have to be paid within one year
13
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Liquidation
When a firm ceases trading and its assets are sold for cash
14
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Insolvent
When a business cannot meet its short-term debts
15
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Net cash flow
Sum of cash payments to a business (inflows) less the sum of cash payments made by it (outflows)
16
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Cash outflows
Payments in cash made by a business, such as those to suppliers and workers
17
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Cash inflows
Payments in cash received by a business, such as those from customers (debtors) or from the bank, e.g. receiving a loan
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Current assets - Current liabilities
Working capital
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Current assets
Stocks, debtors (= customers who have bought products on credit and will pay cash at an agreed date in the future) and cash
20
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Current liabilities
Debts of the business that will usually have to be paid within one year
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Working capital cycle
Period of time between spending cash on the production process and receiving cash payments from customers
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Structure of cash flow forecasts
Cash inflows, cash outflows, net monthly cash flow and opening and closing balance
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Lack of planning; poor credit control; allowing customers too much credit; expanding too rapidly; unexpected events
5 causes of cash flow problems
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Reducing cash outflows; improving cash inflows; sourcing additional finance
3 strategies for dealing with cash flow problems