Cash Flow Forecasting AS Business Studies. Aims and Objectives Aim: Understand cash inflows and...

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

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?

Cash Flow Forecasting AS Business Studies. Aims and Objectives Aim: Understand cash inflows and...

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