 What is cash? Cash is money!!! Its the money that businesses get from selling their goods and services  All business need cash to allow them to function  Cash is a current asset. TASK: Make a list of all the things a business might use cash for

 There are two other main types of current assets:  Stocks (what a business has in its possession)  Debtors (amounts owed to a business)  Formula: Current Assets = Cash + Stocks + Debtors

 Working capital refers to the money that is available for the daily running of the business.  Formula: Working Capital = Current Assets – Current Liabilities  The amount of working capital shows the funds that are available to pay for its immediate costs and expenditure (running costs)  If a business has a lack of working capital, they are unable to pay for their routine operations. A lack of working capital is the reason that many businesses collapse.

 Running costs refer to immediate costs and expenditure. TASK: Brainstorm the running costs of a business

Production CostsCash Sales -Firms spend cash on purchasing production equipment/materials -Firms make the product and sell it -Firms receive cash for the sales -Cycle starts again -BUTTTTTTT. There is a time lag between spending money on production costs

 Define the term current assets  Define the term current liabilities  Mindmap the main types of each  Outline why there is a delay in paying for the costs of production and receiving money from the sales of goods. What is this time lag called?  Draw and label the working capital cycle  Define the term liquidity. Outline why it is not efficient for a business to have too much liquidity.  Homework:  Complete Question (a,b) on page 364 of Textbook. Answer in your workbook, in full sentences

a) Working capital (or net current assets) refers to the money available for the daily running of a business, i.e. it is used to pay for everyday costs such as wages, utility bills and payment to suppliers. Working capital is mainly generated from the sale of goods and services. b) Improved cash flow management is needed during a long working capital cycle, such as when Le Royal Meridien are building new hotels because: There is a prolonged delay between payments for production costs (to construct the new hotels) and proceeds from customers paying to stay at the new hotels. Poor cash flow management could therefore cause the construction work to halt due to a lack of working capital. Current liabilities (such as overdrafts, creditors and tax demands) will further drain cash flow. Again, it is vital to manage cash flow in order to keep the Le Royal Meridien afloat. Poor cash flow management can make the organisation go further into debt as it seeks to borrow more finance to fund the construction of the new hotels. This may cause gearing problems for the hotel chain.