Forecasting and managing cash flows: Practice Questions

• a.The business is using a high rate of depreciation for its non-current assets.
• b.The business has recently switched from using a bank overdraft to a long-term mortgage.
• c.The business is overtrading by expanding faster than its working capital allows.
• d.The business has successfully negotiated shorter lead times with its main suppliers.

• a.Lease payments, purchase of inventory, and depreciation.
• b.Sale of equipment, tax payments, and marketing expenditure.
• c.Repayment of bank loan, interest payments, and increase in trade payables.
• d.Dividend payments, purchase of non-current assets, and wages.

• a.It accelerates cash inflows from trade receivables, albeit at a cost.
• b.It increases the opening cash balance by reducing fixed costs.
• c.It reduces the cash outflows for payments to suppliers.
• d.It increases the total value of credit sales reported in the forecast.

• a.Opening balances for subsequent months will remain unchanged as the total revenue is the same.
• b.Net cash flow will improve because the business is more competitive.
• c.The closing balance in the first month will increase due to higher sales volume.
• d.Cash inflows from sales will be delayed, potentially leading to a higher requirement for an overdraft.

• a.Increasing the credit period offered to customers to stimulate sales volume.
• b.Reducing the selling price of products to increase the contribution margin.
• c.Purchasing new energy-efficient machinery to reduce long-term variable costs.
• d.Negotiating a longer credit period with trade payables to delay cash outflows.

Write your answer out first, then check it against the worked solution.