logging in or signing up working capital and cash flow forecasting MrsWard Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 287 Category: Education License: All Rights Reserved Like it (1) Dislike it (0) Added: May 05, 2011 This Presentation is Public Favorites: 0 Presentation Description This PPt guides students through the concept of working capital and the working capital cycle. It also looks at how to compile a cash flow forecast and examines why businesses use cash flow forecasting Comments Posting comment... Premium member Presentation Transcript IB Business Management: IB Business Management Unit 3.2 Accounting and Finance Working CapitalWorking Capital: Working Capital Working capital is the amount of money needed to pay for the day to day running of the business A business needs working capital to pay for things such as wages, electricity, gas and to buy raw materials for production and stockSlide 3: Working capital = Current assets – Current liabilities Current assets are stock debtors and cash i.e. liquid assets Current liabilities is the money owed by the business which needs to be paid in the short term Assets – Business owns Liabilities – Business owesWorking Capital Cycle: Working Capital Cycle Managing the working capital cycle is crucial for Businesses There are sometimes delays or time lags between different stages of business activityLag 1: Lag 1 A business purchases resources from a supplier on credit Business can obtain resources without actually paying for them yet Might be up to 90 days before payments are made Difficult for new businesses with no credit historyLag 2: Lag 2 Resources are turned into products using fixed assets This incurs other costs such as wages Production process can take time before profits are madeLag 3: Lag 3 Businesses may store finish goods before they are sold This can cost money and be expensive There is an opportunity cost but it means the business can cope with changes in demandLag 4: Lag 4 A business could sell the products on credit Once the cash has been collected from customers the cycle can begin againCash flow: Cash flow Cash is the most LIQUID of all business assets Business use cash flow forecasts to predict how cash will flow into and out of the business over time A cash flow forecast DOES NOT show profit!Cash flow forecast: Cash flow forecast Look at the example of the cash flow forecast on page 162 Copy out the table and give definitions for each of the terms in the forecastWhy do businesses use cash flow forecasts?: Why do businesses use cash flow forecasts? Identifying the timing of cash shortages and surpluses Supporting applications for funding Enhancing the planning process Monitoring the cash flowHow can a business improve its cash flow?: How can a business improve its cash flow? Offer prompt payment discounts to its customers Delay paying its suppliers by asking for an extended credit period from them (trade credit) Negotiate better interest rates on loans Spread out or smooth out quarterly rental or utilities bills to avoid sudden rises in overdraft position. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
working capital and cash flow forecasting MrsWard Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 287 Category: Education License: All Rights Reserved Like it (1) Dislike it (0) Added: May 05, 2011 This Presentation is Public Favorites: 0 Presentation Description This PPt guides students through the concept of working capital and the working capital cycle. It also looks at how to compile a cash flow forecast and examines why businesses use cash flow forecasting Comments Posting comment... Premium member Presentation Transcript IB Business Management: IB Business Management Unit 3.2 Accounting and Finance Working CapitalWorking Capital: Working Capital Working capital is the amount of money needed to pay for the day to day running of the business A business needs working capital to pay for things such as wages, electricity, gas and to buy raw materials for production and stockSlide 3: Working capital = Current assets – Current liabilities Current assets are stock debtors and cash i.e. liquid assets Current liabilities is the money owed by the business which needs to be paid in the short term Assets – Business owns Liabilities – Business owesWorking Capital Cycle: Working Capital Cycle Managing the working capital cycle is crucial for Businesses There are sometimes delays or time lags between different stages of business activityLag 1: Lag 1 A business purchases resources from a supplier on credit Business can obtain resources without actually paying for them yet Might be up to 90 days before payments are made Difficult for new businesses with no credit historyLag 2: Lag 2 Resources are turned into products using fixed assets This incurs other costs such as wages Production process can take time before profits are madeLag 3: Lag 3 Businesses may store finish goods before they are sold This can cost money and be expensive There is an opportunity cost but it means the business can cope with changes in demandLag 4: Lag 4 A business could sell the products on credit Once the cash has been collected from customers the cycle can begin againCash flow: Cash flow Cash is the most LIQUID of all business assets Business use cash flow forecasts to predict how cash will flow into and out of the business over time A cash flow forecast DOES NOT show profit!Cash flow forecast: Cash flow forecast Look at the example of the cash flow forecast on page 162 Copy out the table and give definitions for each of the terms in the forecastWhy do businesses use cash flow forecasts?: Why do businesses use cash flow forecasts? Identifying the timing of cash shortages and surpluses Supporting applications for funding Enhancing the planning process Monitoring the cash flowHow can a business improve its cash flow?: How can a business improve its cash flow? Offer prompt payment discounts to its customers Delay paying its suppliers by asking for an extended credit period from them (trade credit) Negotiate better interest rates on loans Spread out or smooth out quarterly rental or utilities bills to avoid sudden rises in overdraft position.