Cima Edition 15 Presentation
Transcript of Cima Edition 15 Presentation
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Cash flow
THE TIMES 100
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THE TIMES 100
What is cash?
Cash is notes, coins and bank deposits thatprovide firms with the spending power topay their bills and expenses
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THE TIMES 100
Cash flow
Cash flow refers to the flows of cashboth into and out of a business
Cash inflows are payments into a firmfrom customers or other sources
Cash outflows refer to payments madeby a business
Net cash flow=cash inflowcash outflow
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THE TIMES 100
Cash flow forecasting
Cash inflows result from:
Cash sales from customers
Payments from debtors Cash from other sources such as bank
loans
Cash outflows result from:
Paying overheads such as rent & wages Paying for raw materials & other variable
costs
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Cash flow forecasting
A cash flow forecast will include:
Cash inflows (receipts)
Cash outflows (payments) Net cash flow (inflows minus outflows)
Opening balance (this is the same asthe closing balance of the previous
period) Closing balance (opening balance
combined with net cash flow)
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Cash flow forecasting
Jan Feb March April May June
Cashinflows
17,000 18,500 19,000 19,800 21,000 18,900
Cashoutflows 14,300 15,100 24,900 16,300 17,800 24,800
Net cashflow
2,700 3,400 (5,900) 3,500 3,200 (5,900)
Openingbalance
2,200 4,900 8,300 2,400 5,900 9,100
Closingbalance
4,900 8,300 2,400 5,900 9,100 3,200
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Importance of cash flowforecasting
To identify periods of cash shortfall soaction can be taken to deal with this
To identify periods of cash surplus soexpenditure can be planned
To secure additional funding, for example,from a bank
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Consequences of cash flowproblems
If a firm does not have the cash to pay itsdebts:
Relationships with suppliers maydeteriorate
Workers may leave
It may have to cease trading
In the short-term CASH is considered to bemore important than PROFIT
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Causes of cash flow problems
Poor planning
External factors e.g. the credit crunch
Inadequate credit control
Holding excessive stock
Investing too heavily in fixed assets
Overtrading expanding quicker than
available funds allow
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Improving cash flow
In simple terms, cash flow can be improvedby:
Increasing, or speeding up, cash inflows
Decreasing, or slowing down, cash
outflows
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Methods of improving cash flow
Increase & speed up cashinflows
Decrease & slow down cashoutflows
Overdraft or bank loan Delay paying creditors
Debt factoring Delay unnecessary capitalspending
Sale of assets or sale &
leasebackLease rather than buy
Shorten credit terms for
customers & chase up debts
Reduce spending on expenses
e.g. negotiate lower rent
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Cash v profit
Do not confuse cash and profit
The receipt of cash may not coincide withan associated sale, for example:
An item may be bought on credit and paidfor at a later date
A bank loan may be taken out causing apositive cash flow, but no sales have beenmade
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Cash flow in context
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Fill the gaps
January February March
Cash inflow 10,000 11,000 ?
Cash outflow 9,000 11,500 10,800
Net cash flow 1,000 ? 400
Opening balance ? 1,600 1,100
Closing balance 1,600 1,100 1,500
What are the missing figures?
Use the CIMA case study to help you
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Controlling cash
Management accountants deal with a rangeof issues related to controlling cash inorganisations. Give examples of these
activities.
Use the CIMA case study to help you
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Managing cash shortfalls
Trained management accountants willforecast when there may be possible cashshortfalls and have strategies in place to
deal with these. What might a business doif a possible shortfall has been forecast, toensure it can pay its creditors?
Use the case study to help you.
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Effective forecasting
Organisations operate within dynamicbusiness environments so managementaccountants must take a range of external
factors into account when forecastingcash flow. Give examples of changes thatmay affect cash flow forecasts.
Use the CIMA case study to help.
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Useful resources
Cash flow lesson suggestions andactivities (The Times 100)
CIMA case study (The Times 100)
CIMA website