forecasting cash flows lo: to understand the purpose and functions of a cash flow forecast

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FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

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Page 1: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

FORECASTING CASH FLOWS

LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

Page 2: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

THE CASH FLOW FORECAST

A business will estimate;

• How much it will sell• How much it will cost to make what is sold• How much fixed costs will be

A business then makes sure it has enough cash.

This is done using a cash flow forecast.

Lo: To understand the purpose and functions of a cash flow forecast

Page 3: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

INFLOWS • Sales Revenue- received from customers

• Capital- received from selling assets

• Grants – received from the government

• Loans – received from banks

LO: To understand the purpose and functions of a cash flow forecast

Page 4: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

OUTFLOWS• Wages

• Equipment

• Raw materials

• Tax

• Rent

• Utilities Telephone, gas, electricity LO: To understand the purpose and functions of a cash flow forecast

Page 5: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

THE CASH FLOW FORECAST

A cashflow summarises the money going in and out of a business.

Each month has a separate column

Each column is split into three sections.

Page 6: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

SECTIONS OF A CASHFLOW

Page 7: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

TASK

Monsters Mint cash flow

Cash flow quiz

Cash flow mock.

Page 8: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

IMPORTANCE OF CASHFLOW • The business

cannot survive without cash

• A business needs cash on a day-to-day basis

• A business is most likely to close if it has no cash.

Page 9: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

CASHFLOW PROBLEMS

More cash leaving the business than is going in

An accumulation of negative cash flow.

Page 10: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

WHAT AFFECTS CASH FLOW?• Sales can change

• Costs can change

• Credit terms can change

• Stock levels can change

Page 11: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

RULES OF CASH FLOW

Page 12: FORECASTING CASH FLOWS LO: TO UNDERSTAND THE PURPOSE AND FUNCTIONS OF A CASH FLOW FORECAST

EXAM QUESTION