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CASH FLOW STATEMENTS

CASH FLOW STATEMENTS. IB BUSINESS & MANAGEMENT . What is a Cash Flow Statement?. Anticipated revenues and expenses, often for a 6 month time period

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CASH FLOW STATEMENTS

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  1. CASH FLOW STATEMENTS IB BUSINESS & MANAGEMENT

  2. What is a Cash Flow Statement? • Anticipated revenues and expenses, often for a 6 month time period • Cash flow statements are very important for business as they indicate which months the business could experience a short fall in operating revenue. • Cash flow statements are closely connected to the working capital needs of the business.

  3. Cash Flows Statements & Working capital • Working Capital can be defined as the money needed by a business for its day to day or immediate needs. • There is a balance between having too much working capital and too little. • Businesses try to squeeze working capital by making it move quickly towards cash. • Controlling the working capital cycle links closely with an accountant’s role to manage cash and forecast cash flow needs.

  4. Example Cash Flow Statement • Antonio Rizzo runs Rizzo Fashions. Antonio has produced forecasted sales revenue and costs for January to June 2010, if a new product the Sepranza range is launched. • He expects to receive monthly revenue of $100,000. 60% of this will be paid in cash with the remaining 40% received one month later (payments from credit card companies) • He also expects sales to grow by 10% per month.

  5. Summary of Predicted Revenue and Expenses for Rizzo Fashions

  6. CASH FLOW STATEMENT – EXAMPLE

  7. How do I calculate the closing balance and Net Cash Flows (Eg: Jan) How to Calculate Closing Balance: Opening Balance + (plus) Total Cash Inflows $50,000 + $60,000 ($110,000) - (minus) Outflows = Closing Balance $110,000 - $30,000 $80,000 How to Calculate Net Cash Flows: Closing Balance – Opening Balance = Net Cash Flow $80,000 - $50,000 = $30,000

  8. Where do I get the new opening balance each month? • The closing balance from the previous month will be the new opening balance each month.

  9. Cash Flow Exercise Johnson Ltd, managed by Rick Johnson has produced forecasted sales revenue and costs for January to June 2011, if a new product Viva is launched. He expects to receive monthly revenue of $200,000. 60% of this will be paid in cash with the remaining 40% received one month later (payments from credit card companies) He also expects sales to grow by 15% per month.

  10. Summary of Predicted Revenue and Expenses for Johnson Ltd USING THE ABOVE INFORMATION CREATE A CASH FLOW STATEMENT FOR JOHNSON LTD.

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