1. IGCSE Business Studies
5.2 Cash Flow Forecasting and Working Capital

2. Learning Outcomes To understand why cash is important to a business
To understand how to produce a simple cash flow forecast and why it is important
To be able to amend or interpret a cash flow forecast
How to solve short term cash flow problems
To understand the concept and importance of working capital

3. Key Question
What happens if the cash stops flowing?

4. What is Cash? Cash is the liquid asset in your pockets!
Immediately available to spend on goods or services

5. Reflection!
Is CASH the same as PROFIT?

6. Why Is Cash So Important?
CONSIDER:
Raw materials
Wages
Utilities
Rent

7. Explain the diagram?

8. So Cash Flow Is.. The cash Inflows compared to the cash Outflows
A business needs to have a positive cash flow each month to stay solvent
If cash flow is negative – the business needs to consider possible sources of finance to keep the business running
A cash flow forecast attempts to plan for months when negative cash flow occurs

9. So…A Cash Flow Forecast Is

10. Let’s Try an Example Together!
Look at the cash flow forecast template – any questions?
Input the data from the information for Pete’s Pizza Slices
What are your observations?

11. Ok Your Turn Try the Billy Bob Cash Flow Scenario
Use Pencil – you will make mistakes
Read the information VERY carefully
Answer the questions given your findings
What would you recommend Billy Bob to do?

12. Reflection What aspects did you find difficult?
How can you avoid mistakes?
How can cash flow problems be resolved?

13. Cash Flow Problems Occur When...
Stock levels are too high
A business expands too quickly
Investing too much in Fixed Assets
Borrowing too much
Seasonal demand

14. Solutions to Cash Flow Problems…
Trade Credit (delay payments)
Overdraft
Bank Loan
Debt Factoring
Sale of assets (stock)
Encourage quick payments (offer discounts)

15. So…Why is a Cash Flow Forecast So Important For a Business!

16. Quiz 1
Quiz 2

17. We will Revisit This when we look at Balance Sheets
Working Capital
The capital available for the day to day running of the business
Working Capital = Net Current Assets
Net Current Assets = Current Assets – Current Liabilities
We will Revisit This when we look at Balance Sheets