3.

7 - Cash Flow & Working Capital

Difference between Cash inflows and outflows:
- Cash inflow is the money going into a business which could be from sales,
investments, or financing. It's the opposite of cash outflow, which is the money
leaving the business

Difference between Profit & Cash Flow:

1. Profit includes revenue and credit, profit is measured by difference between revenue
generated and total business costs
2. Cash flow just has pure cash and measures the full range of money flowing in and
out of a business.

Working capital:
1. It is the money that a business has available to fund its day to day operations
2. Also known as net current assets
3. Working capital = Current assets - Current liabilities

Liquidity Position:
1. The statement of financial position contains financial information required to draw
conclusions about the liquidity of the business
2. Liquidity is ability of a business to meet its short term obligations with use of their
assets

Cash flow forecasts:

- It is the prediction of the anticipated cash inflows and outflows
1. Net cash flow: Total inflow - Total outflow
2. Opening balance: Previous month’s closing balance carried forward
3. Closing balance: Adding net cash flow to opening balance

Cash Flow Format: Cash flow forecast/statement for x, for the x months during x

M1 M2 M3 M4
Opening Balance

Inflows
Cash Sales
Total Inflows

Outflows
Stock
Rent
Other
Total Outflows

Net Cash flow (Inflow - Outflow)

Closing Balance (Opening balance + net cash flow)

 Evaluating Cash flow forecasts

- They provide insights into expected inflows and outflows

- Using this, businesses can be better prepared
- Helps to understand the do’s and dont’s so that business can make smart
decisions.

Advantages DIsadvantages

- They support applications for loans
and help in making business plans
- Helps make plans and prepare for
negative events taking place.
- They are based on estimates, and
reality differs a lot from estimates
made
- External factors affecting cash flow
are not included in the forecast.