cash flow forecasting as business studies. aims and objectives aim: understand cash inflows and...
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Cash Flow Forecasting
AS Business Studies
Aims and Objectives
Aim:• Understand cash inflows and outflows
Objectives:• All: Recap on costs, revenues and profits• All: Define cash flow forecasting• Most: Distinguish between cash inflows and
outflows• Some: Assess the advantages of cash flow
forecasting.
Starter
Define the following:• Costs
• Revenues• Profits
Describe the relationship between costs, revenues and profits.
5 Mark Question
Steve owns and runs a car customising business. Here are his financial figures.
5 Mark Question
What is cash flow?
Task: In groups determine a definition for cash flow.
Definition:The total cash payments (inflows) into a business minus the total cash payments (outflows).
Why is Cash Flow Important?
• Round Robin
• Why is cash flow important?
• Brainstorm Ideas.
Importance of Cash
Flow
Timing of Receipts (inflows)
Obtaining Finance
Suppliers and
Creditors
Timing of Payments (outflows)
Cash Flow Forecasting
Definition:
• An estimate of a firm’s future cash inflows and outflows.
• Essential for a businesses’ financial planning.
• Could be based on historical data, or primary/secondary research or predictions.
Cash Flow Quiz
• Decide whether each item is an inflow or an outflow.1. Owners capital injection2. Debtors Rent payment3. Electricity, gas, water4. Wages5. Cash purchases6. Loans received7. Interest repayments8. Raw Materials
Cash Inflows
Inflow Description
Owners Capital Money put into the business by the owner. Easy to forecast.
Bank Loans Received Loans from bank, easy to forecast agreed with bank.
Customers cash purchases Difficult to forecast as depends on sales. Sales forecast?
Debtors PaymentsPayments from people who owe
money. Difficult to forecast, when will debtors pay?
Cash Outflows
Outflows Description
Rent Easy to forecast
Electricity, Gas, Water Difficult to forecast as vary with customers/opening hours etc.
Wages / Salaries Could differ, could be the same.
Other Expenses Materials, etc.
Cash Flow Forecast Modelling
• Young’s Sports Ltd
• Sort your cards into inflows and outflows on your table.
• Decide on where you think each item will go on your Cash Flow Forecast
Cash Flow Forecast of ...............................................................For the Period 01/2012 - 2/2012
JANUARY FEBRUARY
Forecast Forecast
CASH RECEIVED/RECEIPTS
TOTAL CASH IN £
EXPENDITURE
TOTAL CASH OUT £
NET CASH FLOW (TOTAL CASH IN – TOTAL CASH OUT)
OPENING BALANCE CLOSING BALANCE
Cash Flow Forecast Modelling
Plenary
• Define cash flow forecasting
• Why do you feel it is important to forecast cash flow for businesses?
Level 4: What do you feel the advantages are of producing a cash flow forecast?