Chapter 22: Cash flow forecasting and working capital

1 Which of the following is an example of a cash inflow for a business?

1) Payment to suppliers

2) Paying back a loan to a bank

3) Payment made by debtors

4) Purchase of fixed assets

• 1)

• 2)

• 3)

• 4)

2 Which of the following is an example of a cash outflow for a business?

1) Payments to creditors

2) Sale of goods for cash

3) Payment from debtors

4) Receiving a loan from the bank

• 1)

• 2)

• 3)

• 4)

3 Complete this statement with the best option: ‘The longer the cash-flow cycle….’

1) the less cash the business will need

2) the lower will be the firm’s working capital needs

3) the less chance there is for the business to run out of cash

4) the more working capital and cash the business will need

• 1)

• 2)

• 3)

• 4)

4 All of the following would be included in a typical cash flow forecast except:

1) cash sales

2) opening balance

3) monthly profit

4) net cash flow

• 1)

• 2)

• 3)

• 4)

5 If a business ‘runs out of cash’ it may be forced to:

1) sell assets to pay suppliers

2) Increase prices to make higher profits

3) buy more materials to increase production

4) sell more products on credit

• 1)

• 2)

• 3)

• 4)

6 Which one of the following is the most likely reason for a business running into cash flow problems?

1) Demanding quick payment from customers

2) Allowing customers a long credit period but paying suppliers immediately

3) Allowing customers a long credit period and delaying payments to suppliers

4) Producing goods only when demanded by customers and keeping low inventory levels

• 1)

• 2)

• 3)

• 4)

7 Which of the following is not a use of cash flow forecasts?

1) They indicate how much cash is available for paying bills

2) They indicate how much the bank might need to lend in order for the firm to avoid insolvency

3) They indicate whether the business is holding too much cash which could be used more profitably

4) They indicate how much profit the business will make

• 1)

• 2)

• 3)

• 4)

For questions 8–10 refer to the following cash-flow forecast for Fiesta Productions Ltd (2014) $000. Figures in brackets are negative.

May June July

Cash inflows:

Sales 7 8 10

Cash outflows:

Payments to

creditors 3 1 8

Wages 2 2 7

Total cash out-flows: 5 3 15

Opening cash

balance 2 x 9

Net cash flow: 2 5 z

Closing bank

balance 4 y 4

8 Which of the following is the value of x? ($000)

1) (2)

2) 2

3) 4

4) 6

• 1)

• 2)

• 3)

• 4)

For questions 8–10 refer to the following cash-flow forecast for Fiesta Productions Ltd (2014) $000. Figures in brackets are negative.

May June July

Cash inflows:

Sales 7 8 10

Cash outflows:

Payments to

creditors 3 1 8

Wages 2 2 7

Total cash out-flows: 5 3 15

Opening cash

balance 2 x 9

Net cash flow: 2 5 z

Closing bank

balance 4 y 4

9 Which of the following is the value of y? ($000)

1) (9)

2) 6

3) 9

4) 15

• 1)

• 2)

• 3)

• 4)

For questions 8–10 refer to the following cash-flow forecast for Fiesta Productions Ltd (2014) $000. Figures in brackets are negative.

May June July

Cash inflows:

Sales 7 8 10

Cash outflows:

Payments to

creditors 3 1 8

Wages 2 2 7

Total cash out-flows: 5 3 15

Opening cash

balance 2 x 9

Net cash flow: 2 5 z

Closing bank

balance 4 y 4

10 Which of the following is the value of z? ($000)

1) (15)

2) (5)

3) 5

4) 15

• 1)

• 2)

• 3)

• 4)