3.7 CashFlow
3.7 CashFlow
3.7 CashFlow
BUSINESS BUYS EGGS, DAIRY AND FRUIT SALES OF ICE CREAM TO RETAILERS
FROM SUPPLIERS
Total costs = $6 000 PRODUCTION OF ICE CREAM TUBS Sales revenue = $10 000
BUSINESS BUYS EGGS, DAIRY AND FRUIT SALES OF ICE CREAM TO RETAILERS
FROM SUPPLIERS
PRODUCTION OF ICE CREAM TUBS
Total costs = $6 000 Sales revenue = $10 000
THE HIGHER THE CHANCE THE BUSINESS WILL NEED CASH AT SOME POINT
KNOWING IN ADVANCE WHEN THE BUSINESS IS LIKELY TO FACE A PERIOD OF CASH SHORTAGE
PLAN AHEAD
-
Percentages
Cost of sales = ?
50% credit
1) Check if sales are always prompt payment or if the business gives credit to customers
2) Cost of sales, when given as a % of sales, are always calculated using Total sales (even if part of sales were on credit)
4) Loan is an inflow when the Business receives it (usually this is the case in questions)
5) Interest is an outflow (unless it says specifically that the business receives interest)
In Business Management, the term investment refers to the purchase of fixed assets (such as
equipment and machinery), with the intention of creating a financial return (profit) in the future. It is
therefore also known as capital expenditure.
Investment often requires a large initial amount of cash (for purchasing the fixed assets), so this can have
a negative impact on the organization’s net cash flow.
However, in the long run, the business intends for the investment expenditure to generate a profit for the
organization and improve its net cash flow.
Despite the risks, investment expenditure is important for an organization’s survival and sustainability. By
contrast, the lack of investment can negatively affect businesses as they fail to adapt to changing needs
and wants in the marketplace.
IF AT THE END OF THE PERIOD, THE SALES REVENUE IS HIGHER THAN THE COSTS = PROFIT
HOWEVER
INFLOW