1 / 19

Accounts & Finance

Accounts & Finance. Working Capital. Learning Objectives. Define working capital and explain the working capital cycle Prepare a cash flow forecast from given information Evaluate strategies for dealing with liquidity problems . Cash Flow Forecasts.

kin
Download Presentation

Accounts & Finance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Accounts & Finance Working Capital

  2. Learning Objectives • Define working capital and explain the working capital cycle • Prepare a cash flow forecast from given information • Evaluate strategies for dealing with liquidity problems

  3. Cash Flow Forecasts • A financial document that shows the expected movement of cash into and out of a business Based on 3 key components • Cash Inflows (Any money coming into the business, sales revenue, bank loans) – Sometimes called receipts • Cash Outflows (payments, expenses, outgoings) – sometimes called payments • Net Cash Flow – Difference between cash inflows and cash outflows 2 essential components • Opening Balance – Amount of cash at the beginning of a trading period (Will be the same as the previous months closing balance) Sometimes the case study will provide you with the first months opening balance otherwise it is usually 0 • Closing Balance – Amount of cash at the end of a trading period (Opening balance + net cash flow)

  4. Reasons for cash flow forecasts • Investors require a cash flow forecast in order to help them better assess the financial health of the business • Can help managers anticipate difficulties • Aids planning process • But remember…it is a forecast

  5. Sometimes the opening balance is at the top…like on the next example MINUS EQUALS

  6. minus

  7. Cash Flows Benefits Limitations Mistakes when preparing revenue and costs forecasts – inexperienced staff Unexpected cost increases Wrong assumptions Inaccurate research Demoralised workforce • By showing periods of negative cash flow, plans can be put into place to provide additional finance • If negative cash flow appears too great, plans can be put into place to reduce There can be many limitations, at the end of the day, it’s a FORECAST

  8. Causes of cash flow problems • One of the problems with having a long working capital cycle is that the business has to pay for expenses well in advance of receiving any cash inflows • If this problem is stretched out it can lead to liquidity problems

  9. Main causes of cash flow crises: • Overtrading – Expanding too quickly without the sufficient resources • Over borrowing – High cash outflow • Overstocking – Business is holding too much stock, stock costs money to buy, produce and store • Poor credit control – Too much credit given to customers • Unforeseen changes - PEST

  10. Task • Working individually and in pairs complete the following tasks, you should BOTH have a copy of your answers • It is important to firstly read the question properly • Secondly, extract the information required – remember examiners love to overload you with information, half of which you DON’T need • Finally, create your tables in pencil in case of any mistakes

More Related