Business and Management Cima Case Study (Revised)
Reo Jeong
CIMA CASE STUDY
10th February, 2012
Ms.Burns
1.. describe what is meant by ‘cash flow’
Basically, cash flow is the movement of cash into and out of a certain business during a period of time. It is vital to keep in mind that cash flow does not affect the business’s revenue, and thus profit as well. Cash flow, as I have mentioned, is a ‘movement’ meaning that it can be both positive and negative. If the cash ‘inflow’ is higher than the cash ‘outflow’, it gives a positive net cash flow, which means that business will receive more money than it has spent. However, with more outflow than inflow, it will result in a negative net cash flow, which will lead to problems such as not being able to pay bills on time, etc. 2/2
2.. explain how a cash flow forecast can help a business now and in the future
As the case study has mentioned, every organizations and businesses have to manage and monitor their cash flows with great care. A basic cash flow forecast is based on three key concepts: cash inflow, cash outflow, and net cash flow. – predictions into the future In the case study, there is a cash flow forecast for a company called Tesco. It shows the concepts mentioned just now for four consecutive months. Making these cash flow forecasts can help a business in many ways. There are situations when a business needs external finance in order to keep the company running. Most of the time, banks and other lenders require the business to make a cash flow forecast to help themselves better assess the financial health of the business and decide whether or not the business will be able to pay the money that they are going to lend. Considering the cash flow forecast of Tesco (it is shown on the case study as an example), the first two negative cash flows will make the bank and lenders to think that Tesco might not be capable of returning the money at all. However, as the net cash flow turns positive, starting from March, it suggests that after a period of
CIMA CASE STUDY
10th February, 2012
Ms.Burns
1.. describe what is meant by ‘cash flow’
Basically, cash flow is the movement of cash into and out of a certain business during a period of time. It is vital to keep in mind that cash flow does not affect the business’s revenue, and thus profit as well. Cash flow, as I have mentioned, is a ‘movement’ meaning that it can be both positive and negative. If the cash ‘inflow’ is higher than the cash ‘outflow’, it gives a positive net cash flow, which means that business will receive more money than it has spent. However, with more outflow than inflow, it will result in a negative net cash flow, which will lead to problems such as not being able to pay bills on time, etc. 2/2
2.. explain how a cash flow forecast can help a business now and in the future
As the case study has mentioned, every organizations and businesses have to manage and monitor their cash flows with great care. A basic cash flow forecast is based on three key concepts: cash inflow, cash outflow, and net cash flow. – predictions into the future In the case study, there is a cash flow forecast for a company called Tesco. It shows the concepts mentioned just now for four consecutive months. Making these cash flow forecasts can help a business in many ways. There are situations when a business needs external finance in order to keep the company running. Most of the time, banks and other lenders require the business to make a cash flow forecast to help themselves better assess the financial health of the business and decide whether or not the business will be able to pay the money that they are going to lend. Considering the cash flow forecast of Tesco (it is shown on the case study as an example), the first two negative cash flows will make the bank and lenders to think that Tesco might not be capable of returning the money at all. However, as the net cash flow turns positive, starting from March, it suggests that after a period of