2.2.1 Cash flow forecasts/sales forecasting Flashcards

1
Q

Cash flow forecast

A

a financial document showing projected inflows and outflows of cash into and out of a business

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2
Q

Benefits of producing a cash flow forecast

A
  • to look at the liquidity of a firm
  • budgeting - cost budgets and revenue budgets
  • budgeting is part of a business plan to access finance
  • helps to plan liquidity to avoid cash flow shortages - without cash a business may fail
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3
Q

Which stakeholder groups would look at a cash flow forecast?

A
  • shareholders
  • bank
  • creditors - people you owe money to
  • suppliers
  • potential investors
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4
Q

What are the limitations of a cash flow forecast?

A
  • based on assumptions
  • may go out of date - only a 12 month snapshot which is very short term to make an concrete decisions
  • unexpected external factors
  • may be over optimistic and over estimate cash flows
  • only as good as the information used to produce - historic/zero-based
  • to get a full picture the business would need to show a balance sheet and the profit and loss income statement
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5
Q

How can a business improve its cash flow position?

A
  • change payment terms from customer that you sell to on trade credit
  • change payment terms from suppliers/creditors
  • liquidate its assets
  • re-schedule short term debts
  • spread payments
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6
Q

What is meant by opening balance and how is this calculated?

A

calculate from the closing balance from the previous month

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7
Q

What is meant by closing balance and how is this calculated?

A

net cash flow + opening balance

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8
Q

What is meant by net cash flow and how is this calculated?

A

inflows-outflows

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9
Q

Sales forecast

A

a sales forecast is a prediction of the future value of sales made by a business in a time period

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10
Q

Purposes of a sales forecast

A
  • plan operation - capacity management, stock management, staffing
  • to create budgets and targets - can used to motivate
  • to create a cash flow forecast
  • helps to consider promotional budgets
  • to decide if a product is viable or not
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11
Q

External factors that affect a sales forecast

A

-economic state, interest rates, consumer confidence, unemployment - can impact demand
-seasons
-consumer trends
actions of competitors
-changes in regulations and laws
-demographics
-technology
-environmental changes

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12
Q

Difficulties of sales forecasting

A
  • uncertainty in the external environment that can make it difficult to predict
  • can go out of date quickly
  • for a new company or product, there is no historical data that can be used - quantitative data needs to be used
  • dynamic markets can make it hard as the future may be different from the past
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13
Q

Price of elasticity of demand

A

measures the responsiveness of demand to a change in price

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14
Q

Income elasticity of demand

A

measures the responsiveness of demand to a change in income

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15
Q

Inferior and normal goods

A

Inferior - negative YED (demand increases as income falls)

normal = positive YED (demand falls as income falls)

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