3.7 Cash flow

• The working capital cycle is the time difference between the firm paying cash for the cost of production and receiving cash from sales to customers.
• Net cash flow=cash inflows - cash outflows
• Cash flow or working capital refers to the cash or liquid assets available for the daily running of a business.
• Liquidity is how quickly an asset can be turned into cash.
• Relatively liquid assets are usually current assets.
• Relatively illiquid assets are usually fixed assets.
• A liquidity crisis is when there is insufficient cash in a working capital cycle.
• A cash flow forecast is a financial document that shows the expected movement of cash in an out of a business over a period of time.
• Opening balance is the amount of cash at the beginning of a trading period.
• Cash inflows are any cash coming into the business.
• Cash outflows are any cash leaving the business.
• Net cash flow= cash inflows - cash outlflows
• Closing balance = opening balance + net cash flow
• The order of a cash flow forecast is cash for forecast for business name, opening balance, cash inflows, total cash inflows, cash outflows, total cash outflows, net cash flow, closing balance.