Accounts finance
Download
1 / 19

Accounts & Finance - PowerPoint PPT Presentation


  • 72 Views
  • Uploaded on

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.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Accounts & Finance' - kin


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.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Accounts finance

Accounts & Finance

Working Capital


Learning objectives
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
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)


Reasons for cash flow forecasts
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



minus next example


Cash flows
Cash Flows next example

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


Causes of cash flow problems
Causes of cash flow problems next example

  • 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


Main causes of cash flow crises
Main causes of cash flow crises: next example

  • 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


Task next example

  • 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


ad