Revenue is a total income of business gains out of total sales
of the goods and services.
Price per unit X Number of units sold = REVENUE
Fixed Costs: The costs do not vary according to quantity of
goods and services sold. Utilities, salaries, advertising, rent,
office supplies etc. These costs are the same every month.
Variable Costs: Costs vary in every production process.
According to the activity of the production, the quantity of
the goods and services produced, these costs increase or
Total cost = FC + VC
VC = cost per unit X quantity
Profit = Revenue – Costs
Once a business is up and running, and is controlling its cash
flow and making a profit, its directors and owners next
thoughts turn to expansion.
Profit = Total Revenue – Total Cost
At the break-even point, the sales revenue of the business
equals to total expenses.
There is no profit or loss at this point.
By using break-even analysis, you can calculate out how much
additional revenue will be required to cover any additional
The business opportunities or evaluation can be analyzed.
Total Revenue > Total Cost Profit
Total Revenue < Total Cost Loss
Total Revenue = Total Cost Break – Even PointPrice
Break Even Point
The break-even in units formula:
= Break-even in Units
(Unit Price - Unit Cost)
Cash Flow – Cash inflow – Cash
Cash flow is the money that is moving in and out of your
business in a time period.
Cash inflow: movements of cash into a business
Cash outflow: movement of cash out of a business
Receipts from customers
Sale of assets
Receipt from bank loan
Receipts from factoring
Payments of wages and salaries
Payment of suppliers
Cost of equipment
Interest of bank loan
Payment of dividends
Payments of leasing or hire purchase of rentals
VAT & Corporation tax
For ex: The following chart shows the Total Cash Inflow, Total
Cash Outflow and Net Cash Flow of Company X.
Jan Feb Mar Apr May
60,000 55,000 60,000 66,000 54,000
63,000 60,000 60,000 63,000 58,000
-3,000 -5,000 0 3,000 -4,000
-3,000 -8,000 -8,000 -5,000 -9,000
What is Working Capital?
Working capital is the money needed by a business for its day-
to-day or immediate needs.
Cash or working capital is used to buy raw materials which are
turned into finished goods and then sold to customers.
Businesses who hold too much working capital in stock are in
effect wasting their cash as are businesses that do not chase
customers who don’t pay on time.
Controlling the working capital cycle links closely with an
accountant’s role to manage cash and forecast cash flow
What is a Cash-Flow Forecast?
A Cash Flow Forecast is an important financial tool. Cash
flow forecasting is a one year analysis of the cash
requirements to run the business.
It is a way of looking into future and gives the business an
opportunity to take action to create financial plans before
By forecastingthe business cash flow you can manage receipts
and disbursements for your business.
By undertaking a cash flow forecast, a business can see what
its cash requirements might be and arrange an overdraft or
some other strategy to ensure that it does not face a liquidity
Building a Cash-Flow Forecast
There are 3 components of the cash-flow forecast; receipts,
expenditures and cash flow.
For each month in a year:
Write your Total Reciepts (Cash Inflow)
Write your Total Expenditure (Cash Outflows)
Calculate your Cash-Flow
Structure of a Cash-Flow Forecast
Jan Feb Mar Apr May Jun Totals
Sales:credit 50,000 48,000 52,000 70,000 48,000 50,000 318,000
Sales: Cash 10,000 7,000 8,000 8,000 6,000 2,000 41,000
Total receipts 60,000 55,000 60,000 78,000 54,000 52,000 359,000
wages 30,000 34,000 32,000 32,000 32,000 32,000 192,000
Materials 12,000 5,000 7,000 8,000 3,000 5,000 40,000
Interest 3,000 3,000 3,000 3,000 3,000 3,000 18,000
Overheads 18,000 18,000 18,000 20,000 20,000 20,000 114,000
Total Outflows 63,000 60,000 60,000 63,000 58,000 60,000 364,000
Opening Bank Balance 0 -3,000 -8,000 -8,000 7,000 3,000 -5,000
Net Cash -3,000 -5,000 0 15,000 -4,000 -8,000 -5,000
Closing Bank Balance -3,000 -8,000 -8,000 7,000 3,000 -5,000 -10,000
The Importance of Cash-Flow
Forecasting For Managers
You can see the most effective way of using your cash.
You can track your cash inflows.
You can see your payment priorities.
You can measure the unexpected changes such as reduction in
sales, late repayments, tight money situations.
You can have your paying details as written.
You can estimate how much money you need for your day-to-
day or immediate day-to-day operations.
You can understand that you have enough cash to make your