cima edition 15 presentation

7/28/2019 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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THE TIMES 100


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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THE TIMES 100


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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THE TIMES 100

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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THE TIMES 100

Useful resources

Cash flow lesson suggestions andactivities (The Times 100)

CIMA case study (The Times 100)

CIMA website

cima edition 15 presentation

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