5.5 Cash and Cash Flow

• What does cash flow refer to in a business?

  Movement of cash
• Match the cash flow category with its definition:

  Sources of Cash ↔️ Cash inflows that increase the company's cash balance

  Uses of Cash ↔️ Cash outflows that decrease the company's cash balance
• What is the primary purpose of cash flow forecasting?

  Anticipate future financial needs
• Arrange the key components of a cash flow forecast in the correct order:

  1️⃣ Cash Inflows

  2️⃣ Cash Outflows

  3️⃣ Net Cash Flow

  4️⃣ Opening and Closing Balances
• Overspending on expenses can lead to cash flow problems
• What is the purpose of cash flow forecasting?

  Anticipate financial needs
• Understanding cash flow is crucial for effective financial management in a business.


  True
• What is an example of a source of cash for a business?

  Loans received
• The net cash flow is the difference between cash inflows and cash outflows
• Cash flow problems occur when a business has insufficient cash to meet its financial obligations.


  True
• Identifying and addressing cash flow problems is crucial for maintaining financial stability.


  True
• The indirect method converts net income into cash flow by adjusting for non-cash transactions
• Steps to address cash flow problems

  1️⃣ Improve customer payment terms

  2️⃣ Reduce operating expenses

  3️⃣ Manage inventory effectively

  4️⃣ Seek additional financing

  5️⃣ Diversify revenue streams
• Cash flow is the movement of cash in and out of a business
• Cash refers to the money a business has available to spend or use
• A Cash Flow Statement summarizes the movement of cash in and out of a business over a specific period
• Understanding sources and uses of cash helps businesses manage their cash flow effectively.


  True
• Match the forecasting method with its description:

  Direct Method ↔️ Estimates cash inflows and outflows based on planned sales

  Indirect Method ↔️ Converts net income into cash flow by adjusting for non-cash transactions

  Rolling Forecast ↔️ Updated regularly to provide continuous estimates
• What is a common cause of cash flow problems?

  Slow customer payments
• Net cash flow is the difference between cash inflows and outflows
• What is a key advantage of the rolling forecast method?

  Responsive to changes
• Businesses can avoid tying up too much cash in excess stock by optimizing inventory levels
• What is the purpose of forecasting cash flow in business?

  Plan for future needs
• Cash flow problems occur when a business has insufficient cash to meet financial obligations.


  True
• What is one strategy to diversify revenue streams?

  Expand into new markets