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Cash flow

Study why cash matters, how cash flow forecasts are interpreted and how businesses respond to cash flow problems.

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90 min

Study time

AqaGcseBusinessFinance

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Cash flow forecasting and interpretation4 objectives

Explain consequences of cash flow problems and effects of positive cash flow.
Explain how and why cash flow forecasts are constructed.
Complete and interpret sections of a cash flow forecast, including cash inflows, cash outflows, net cash flow, opening balance and closing balance.
Distinguish cash from profit.

Solving cash flow problems1 objectives

Evaluate possible solutions to cash flow problems, including rescheduling payments, using overdrafts, reducing cash outflow, increasing cash inflow and finding new sources of finance.

Cash flowNet cash flow

Interpreting cash flow forecasts: Always examine the timing of cash inflows and outflows, identify any periods of negative cash flow, and plan financing or cost adjustments accordingly.
Structure your answer clearly: Begin with a concise definition, then list the steps, give a brief example, and finish with a short conclusion.

Confusing cash flow with profit: Profit is an accounting measure of revenue minus expenses; a business can be profitable but still have cash flow problems if cash is tied up in inventory or receivables.
Confusing cash flow with profit: Cash flow measures actual cash movement, while profit is the accounting surplus after expenses; a profitable business can still have negative cash flow.

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