WEILAI Online Academic assistant
WEILAI Online Academic assistant
Back to 课程

Business AS AQA

0% Complete
0/0 Steps
  1. 1-1-the-nature-and-purpose-of-business as
    3 主题
  2. 1-2-forms-of-business as
    5 主题
  3. 1-3-the-external-environment as
    5 主题
  4. 2-1-management-and-leadership as
    3 主题
  5. 2-2-management-decision-making as
    4 主题
  6. 2-3-the-role-and-importance-of-stakeholders as
    3 主题
  7. 3-1-marketing-objectives as
    1 主题
  8. 3-2-understanding-markets-and-customers as
    5 主题
  9. 3-3-making-marketing-decisions as
    2 主题
  10. 3-4-the-marketing-mix as
    7 主题
  11. 4-1-operational-objectives as
    2 主题
  12. 4-2-operational-performance as
    1 主题
  13. 4-3-efficiency-and-productivity as
    3 主题
  14. 4-4-quality as
    1 主题
  15. 4-5-inventory-and-supply-chain-management as
    3 主题
  16. 5-1-financial-objectives as
    2 主题
  17. 5-2-financial-performance as
    6 主题
  18. 5-3-sources-of-finance as
    3 主题
  19. 5-4-cash-flow-and-profit as
    1 主题
  20. 6-1-human-resource-objectives as
    1 主题
  21. 6-2-human-resource-performance as
    1 主题
  22. 6-3-organisational-design as
    3 主题
  23. 6-4-human-resource-planning as
    4 主题
  24. 6-5-motivation as
    1 主题
  25. 6-6-improving-employer-employee-relations as
    2 主题
课 Progress
0% Complete

Exam code:7131

The value of cash flow forecasting

  • Cash flow forecasts provide insights into the expected inflows and outflows of cash over a specific period 

  • By analysing these forecasts over time, businesses can better plan and allocate financial resources

Uses and limitations of cash flow forecasts

Uses

Limitations

  • Cash flow forecasts can support an application for a loan and are an integral part of the business plan

  • They can help identify where the business may experience cash shortfalls or cash surpluses so plans can be made to manage these periods (e.g. arranging an overdraft)

  • Cash flow forecasts aid planning and help a business avoid costly mistakes

  • Forecasts are usually based on estimates, and in reality, inflows and outflows may differ significantly from the estimates

  • Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately

  • External factors that can impact inflows and outflows may not be reflected in the cash flow forecast

Constructing cash flow forecasts

Key terminology associated with cash flow forecasts

Term

Definition

Cash inflow

  • Cash entering a business in a specific period of time

Cash outflow

  • Cash leaving a business in a specific period of time

Net cash flow

  • Total cash inflows minus total cash outflows in a specific period of time

Opening balance

  • The previous month’s closing balance carried forward

Closing balance

  • The total of the net cash flow and the opening balance

An example six-month cash flow forecast

 

Jan

Feb

Mar

Apr

May

Jun

Opening balance

500

4,330

2,716

1,292

816

640

Cash inflows

Cash received from sales

2,600

2,800

3,100

4,600

4,800

5,200

Capital introduced

6,000

0

0

0

0

0

Total inflows

8,600

2,800

3,100

4,600

4,800

5,200

Cash outflows

Inventory

1,500

850

950

1,300

1,350

1,400

Wages

2,200

2,200

2,200

2,200

2,200

2,200

Utilities

840

840

840

882

882

882

Loan repayments

0

284

284

284

284

284

Miscellaneous

230

240

250

410

260

260

Total outflows

4,770

4,414

4,524

5,076

4,976

5,026

Net cash flow

3,830

(1,614)

(1,424)

(476)

(176)

174

Closing balance

4,330

2,716

1,292

816

640

814

Analysis of the cash flow forecast example

Executive summary

  • Overall, this cash flow forecast supports an application for the business to borrow £6,000 in January to cover the initial low inflows, significant outflows and negative net cash flow

  • As sales increase from June, inflows are greater than outflows, and the business has a positive cash flow

  • Should a loan be approved, the business will require any short-term sources of finance, such as overdraft facilities

January

  • The cash flow forecast assumes that the bank approves a £6,000 loan in January (capital introduced)

  • The owner has introduced an opening balance of £500

  • The business is expected to achieve sales of £2,600

  • Total inflows are therefore expected to be £8,600 (£2,600 + £6,000)

  • Total outflows are expected to be £4,770

  • The net cash flow is expected to be £3,830 (£8,600 – £4,770)

  • January’s closing balance is expected to be £4,330 (£3,830 + £500)

February

  • The closing balance from January becomes the opening balance for February

  • Sales of £2,800 are expected to be the business’s total inflows 

  • Total outflows are expected to be £4,414 

  • The net cash flow is expected to be -£1,614 (£2,800 – £4,414) 

  • The closing balance is expected to be £2,716 (-£1,614 + £4,430) 

March

  • The closing balance from February becomes the opening balance for March

  • The business expects to achieve sales of £3,100 as its total inflows 

  • Total outflows are expected to be £4,524

  • The net cash flow is expected to be -£1,424 (£3,100 – £4,524) 

  • The closing balance is expected to be £1,292 (-£1,424 + £2,716) 

 April

  • The closing balance from March becomes the opening balance for April

  • Sales of £4,600 are expected as the business’s total inflows 

  • Total outflows are expected to be £5,076

  • The net cash flow is expected to be -£476 (£4,600 – £5,076) 

  • The closing balance is expected to be £816 (-£476 + £1,292) 

May

  • The closing balance from April becomes the opening balance for May

  • The business expects to achieve sales of £4,800 as its total inflows 

  • Total outflows are expected to be £4,976

  • The net cash flow is expected to be -£176 (£4,800 – £4,976) 

  • The closing balance is expected to be £640 (-£176 + £816) 

June

  • The closing balance from May becomes the opening balance for June

  • Sales of £5,200 are the business’s total inflows 

  • Total outflows are expected to be £5,026

  • The net cash flow is expected to be £174 (£5,200 – £5,026) 

  • The closing balance is expected to be £814 (£174 + £640)

Worked Example

Here is a simple three-month cash flow forecast for a small seaside café

 

March

April 

May

Inflows

Sales

46,000

54,000

61,000

Outflows

Inventory

13,000

13,000

13,000

Wages

28,000

28,000

28,000

Miscellaneous

3,500

4,000

4,000

Total outflows

44,500

45,000

45,000

Net cash flow

1,500

9,000

16,000

Opening balance

4,000

5,500

14,500

Closing balance

5,500

14,500

30,500

The café owner thinks that good weather will increase the volume of customers and decides to appoint another full-time assistant in March. As a result, wages increase to an expected £31,000 per month

Calculate the closing balances in the cash flow forecast resulting from the changes above

[4]

Answer:

Step 1: Insert the value of the new wages into the relevant space for each month

 

March

April

May

Wages

31,000

31,000

31,000

Step 2: Calculate the new total outflows for each month, and insert them into the relevant space for each month

  • March: £13,000 + £31,000 + £3,500 = 47,500

  • April: £13,000 + £31,000 + £4,000 = 48,000 (1)

  • May: £13,000 + £31,000 + £4,000 = 48,000 

<th class=”border-dark border fw-bold” colspan=”1″ row

Responses

您的邮箱地址不会被公开。 必填项已用 * 标注