Flashcards
Section 5 Business Case Study
Cards in this deck (11)
- 1Define 'Cash Flow Forecast'It shows:
1. Expected cash coming into a business
2. Expected cash going out of a business
3. Estimated (opening and closing) bank balance
(Usually on a month by month basis over a period of 6 to 12 months) - 2What is the difference between profit and cash?Profit = Revenue - Total Costs
Not all goods are paid for upon receipt - many businesses allow customers to pay in a little while (e.g. 30 days)
A business may have received goods it has not paid for yet - 3Why is cash essential for a business?Needed for short term survival - needed to pay bills. If the business cannot pay this, they will be forced to close and into bankruptcy and liquidation.
- 4Why is cash flow forecasting beneficial?1. Enables business to see how much cash will be held at a given time in the future
2. Assess businesses ability to pay off debts as they are due
3. Identify imminent cash flow problems
4. Plan how to prevent potential cash shortages
5. Informs key decisions - what will be the effect?
6. Loans can be acquired for periods of short cash inflow
7. Use it to set targets - 5What are the limitations of cash flow forecasting?1. Figures are estimated
2. Don't take into account unforeseeable events
3. Difficult to complete accurately - 6What are the two types of closing balances?Cash shortfall (negative lack of money) or cash surplus (positive a lot of money in the bank)
- 7How might BMF solve the cash shortfall?1. Reduce debts by:
- Offering discounts for prompt payment
- Selling assets
- Advertising, special offers, increasing prices - 8Define 'Overdraft'Arrangements between a business and bank to withdraw more money from its account than that deposited in it with an agreed limit
- 9What are the advantages of an Overdraft?1. Quick, simple and convenient money
- 10What are the disadvantages of an Overdraft?1.. High interest rates - increases costs and reduces profit. Interest rates especially high if overdrafts used regularly and for large amounts
2. They are risky because bank can withdraw overdraft facility without notice - 11Define trade credit
Information
- Description
- Year 11 Business Studies Flashcards on Section 5 Business Case Study, created by Humza Mahmood on 20/03/2017.
- Created by
- Humza Mahmood
- Views
- 9
- Rating