The Importance Of Cash And Of Cash-flow Forecasting:
Overview
A profitable business can still go bust. If it runs out of cash to pay wages, suppliers or the bank, it can be forced to stop trading even while its order book is full. That is why managing cash, and forecasting it, is one of the most important financial skills in business.
This lesson explains why cash matters, how to build and read a simple cash-flow forecast, and how to fix a short-term cash shortage. By the end you will be able to complete a forecast, spot the danger months and recommend solutions.
Objectives
- Why cash is important to a business
- What a cash-flow forecast is, how a simple one is constructed and the importance of it
- Amend or complete a simple cash-flow forecast
- How to interpret a simple cash-flow forecast
- How a short-term cash-flow problem might be overcome, e.g. overdraft, delaying supplier payments, asking debtors to pay more quickly
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on The Importance Of Cash And Of Cash-flow Forecasting:. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Net cash flow is: A. inflows plus outflows B. inflows minus outflows C. profit minus tax D. opening balance only Answer: B
- The closing balance equals: A. opening balance minus inflows B. opening balance plus net cash flow C. net cash flow only D. outflows minus inflows Answer: B
- If inflows are $12,000 and outflows are $15,000, the net cash flow is: A. +$3,000 B. -$3,000 C. +$27,000 D. -$27,000 Answer: B
- Running out of cash to pay debts is called: A. profit B. insolvency C. liquidity D. turnover Answer: B
- A suitable way to overcome a short-term cash shortage is: A. a 10-year loan B. a bank overdraft C. selling the building D. issuing shares to the public Answer: B
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