Cash Flow Forecasting and Working Capital
Cash Flow Forecasting and Working Capital
Cash Flow Forecasting and Working Capital
Cash flow – money going into and out of a business over a period of time
Examples of cash inflow include
Sales of products and services.
Money received from bank loans and sale of assets.
Capital raised from selling shares
Examples of cash outflow
Purchasing of stock/inventory.
Buying assets such as buildings, machinery etc.
Employee wages and salaries
The opening cash/bank balance is the amount of cash held by the business at the start of the month
Net Cash Flow = Total Cash Inflow – Total Cash Outflow
The net cash flow is added to opening cash balance to find the closing cash/bank balance– the
amount of cash held by the business at the end of the month. Remember, the closing cash/bank balance
for one month is the opening cash/bank balance for the next month!
The figures in bracket denote a negative balance, i.e., a net cash outflow (outflows > inflows)
Working capital
Working capital – Capital (money) available for a business to pay for day to day operations
Working capital = current assets – current liabilities