Cash flow 1
When a firm ceases trading and its assets are sold for cash
What is liquidation?
Cash held by the business at the start of the month
Opening cash balance
Cash held at the end of the month becomes next month's opening balance
closing cash balance
A loan backed by an asset of value, such as property or vehicles
Secured Loan
The act of spending money on purchasing an asset with the expectation of future earnings
Investment
Customers who have bought products on credit and will pay cash at an agreed date in the future
Debtors
debts of the business that will usually have to be paid within one year
Current liabilities
Estimated difference between monthly cash inflows and outflows
net monthly cash flow
An asset that is the subject of a secured loan, and can be sold by the lender to recover the amount owed
Collateral
Breakdown of machines is difficult to predict and it drastically affect the cash position in a business
Equipment failure
Payments in cash received by a business, such as those from customers or from bank or receiving a loan
Cash inflows
Payments in cash made by a business, such as those to suppliers and workers
Cash outflows
monitoring of debts to ensure that credit periods are not exceeded
credit control
A negative balance in a business's bank account
Overdraft
the positive difference between sales revenue and total costs
Profit
The period of time between spending cash on the production process and receiving cash payments from customers
Working capital cycle
Estimate of a firm's future cash inflows and outflows
Cash flow forecast
Unpaid customers's bill that are now very unlikely ever to be paid
bad debt
Lease payments for premises
- Annual rent payment
- Electricity, gas and telephone/internet bills
- Labour cost payments
- Variable cost payments (e.g., raw materials)
Examples of cash outflows
the focus should be on selling obsolete fixed assets to generate cash.
Sale of assets
When a business cannot meet its short term debts
Insolvent
The sum of cash payments to a business(inflows) less the sum of cash payments made by it (outflow)
Net Cash Flow
Expanding a business rapidly without obtaining all the necessary finance so that a cash flow shortage develops
overtrading
Companies can buy the customers's bill from a business and offer immediate cash- this reduces the risk of bad debts too
Debt factoring
Assets can be sold to generate cash and these assets can be hired back by the business for use in production
Sale and leaseback