Finance Essay

2292 WordsApr 21, 201310 Pages
TASK 1 Produce a cash flow forecast for Wobbly Bits Ltd. Using Data set I and analyse your findings including: a. Why the sales forecast is so important b. The relationship between the sales budget and other budgets. A cashflow statement is a management accounting tool, which is used to measure a company’s ability to pay its bills on a regular basis. A company’s cashflow depends on the timing and amount of monies flowing in and out of the business each period, (day, week, monthly etc). The factors to take into account when preparing a cashflow are: · The dates on which salaries, wages and payments to contractors are due and the likely size of each payment · The dates when major capital expenditure payments fall due · The pattern of other spending throughout the year (including regular payments to contractors) · The dates on which any loans are due for repayment and the amounts involved · The dates on which major items of income are receivable · The pattern of other income receipts throughout the year. (CIPFA, (2004), Councillors’ Guide to Local Government Finance). Good cashflow is when the pattern of income and spending in a business allows it to have cash available to pay bills on time. If the above was taken into consideration this would give Wobbly Bits a broad picture of when the company would need to arrange temporary financing or have surplus cash to invest (short term). Cashflow and profit are different. Profit is the difference between the total amount a business earns and all of its costs over a trading period (year). A business can be profitable, but have insufficient cash to pay its bills on time. Poor cash flow management is why a lot of potentially profitably businesses fail. This is why active cashflow management is very important. Key things about cashflow are: · It predicts whether the sales or income will cover

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