Cash flow ppt

1. Forecasting
and
Managing Cash Flow

2. Example:
AMED Enterprises Ltd. Records the following
transactions over the month of June:
 How much is the gross profit in June?
Sales revenue – Cost of Goods Sold = Gross Profit
$ 40,000 – 15,000 = $ 25,000
 Assuming the business started the month with no cash balance,
how much cash would it have at the end of June?
(Ignore any other transactions.)
Cash inflow – Cash Outflow
$ 20,000 (cash sales) – 15,000 = $ 5,000
Goods sold to
customers
$ 40,000 (50% cash; 50% one month credit term)
Cost of goods sold 15,000 (paid in cash)

3. Example:
AMED Enterprises Ltd. Records the following
transactions over the month of June:
 How much is the gross profit in June?
Sales revenue – Cost of Goods Sold = Gross Profit
$ 40,000 – 15,000 = $ 25,000
 Assuming the business started the month with no cash balance,
how much cash would it have at the end of June?
(Ignore any other transactions.)
Cash inflow – Cash Outflow
$ 20,000 (cash sales) – 15,000 = $ 5,000
Goods sold to
customers
$ 40,000 (50% cash; 50% one month credit term)
Cost of goods sold 15,000 (paid in cash)

4. Cash Flow Forecast
- is a forecast of cash inflows and cash outflows over a given
period.
Cash inflows - are the sums of money received by a business during a
period of time.
Cash outflows - are the sums of money paid out by a business during a
period of time.
Cash needed
to pay for
Materials, wages,
rent, others
Goods
produced
Goods sold
Cash payment received
for goods sold
CASH FLOW CYCLE

5. Identify each transaction whether it is a cash
inflow or cash outflow
1. Purchase of a new computer for cash
2. Credit sale of goods to customers
3. Interest on paid bank loans
4. Wages paid to staff
5. Debtors paid their bills
6. Additional shares are sold to the shareholders
7. Creditors are paid in full
8. Bank overdraft is paid off
Activity

6. Sierra Promotion Company
Cash Flow Forecast
January to April 2021
January February March April
Cash Inflows:
Cash sales $ 15,000 15,000 20,000 25,000
Payments from Debtors 5,000 5,000 7,000 8,000
Total Cash Inflows 20,000 20,000 27,000 33,000
Cash Outflows:
Materials & wages 3,000 3,000 5,000 7,000
Rent & other expenses 15,000 15,000 25,000 15,000
Total Cash Outflows 18,000 18,000 30,000 22,000
Net Cash Flow 2,000 2,000 (3,000) 11,000
Opening Bank Balance 3,000 5,000 7,000 4,000
Closing Bank Balance 5,000 7,000 4,000 15,000

7. Activity
The manager of KEVIN Motors Ltd. Is concerned about planning the cash
flows of the business over the next four months. She asks for your help
in making a cash flow forecast. She provides you with the following
information.
Forecasted sales are: January $22,000; February $25,000; March $
20,000; April $22,000.
Customers always pay 80% in cash and 20% on the following month.
Materials are purchased each month and are paid for in cash. The
materials used each month are 50% of sales revenue for that month.
Other cash expenses (wages, rent, insurance, etc.) are estimated as
follows: January $4,000; February $13,000; March $15,000; April
$15,000.
The opening cash balance in January is $2,000.
Required:
a) Draw up a cash flow forecast for Kevin Motors Ltd. for the four months.
b) Comment on the bank balance in April? How would the manager
address this concern?

8. JANUARY FEBRUARY MARCH APRIL
Cash Inflows:
Cash sales 17,600 20,000 16,000 17,600
Payments from Debtors - 4,400 5,000 4,000
Total Cash Inflows 17,600 24,400 21,000 21,600
Cash Outflows:
Materials 11,000 12,500 10,000 11,000
Other expenses 4,000 13,000 15,000 15,000
Total Cash Outflows 15,000 25,500 25,000 26,000
Net Cash Flow 2,600 (1,100) (4,000) (4,400)
Opening Bank Balance 2,000 4,600 3,500 (500)
Closing Bank Balance 4,600 3,500 (500) (4,900)
Kevin Motors Ltd.
Cash Flow Forecast
January to April 2021

9. Causes of Cash
Flow Problems
• Lack of planning
• Poor credit control
• Long credit terms
given to customers
• Expanding too rapidly
• Unexpected events
Ways to Improve
Cash Flow
• Improve cash inflows
• Reduce cash outflows
– Trade receivables
– Trade payables
– Inventory
– Cash