5.2 Cash flow forecast

LFK is a coal-mining business. It has 135 employees who are all provided with training. After the dismissal of one of LFK’s employees there is a job vacancy for a new supervisor. External recruitment will be used. The Managing Director is preparing a cash flow forecast for LFK. An extract is shown in Table 3.1.

c) Identify four reasons why a cash flow forecast might be useful to a business. [4] Reason 1: Reason 2: Reason 3: Reason 4:

Jonathon is a sole trader. He owns a shop selling office equipment including printers. To encourage sales Jonathon allows customers 4 weeks to pay for the office equipment. Jonathon thinks his business is likely to remain small. He knows managing cash flow is important for his business and he has prepared a cash flow forecast. An extract is shown in Table 2.1.

b) Calculate X and Y. [2]

d) Explain two reasons why Jonathon’s business might have a cash flow problem.[6] Reason 1: Explanation: Reason 2: Explanation:

TJK manufactures candles. Contributing to sustainable development is important to TJK. The business uses batch production in its factory in country X. The target market for TJK’s products is females between 20 and 50 years of age. The Managing Director is reviewing TJK’s financial data. An extract is shown in Table 3.1. He is also considering the benefits to a business of becoming multination company.

a) Define ‘working capital’. [2]

SEP operates in the tertiary sector. As a social enterprise, SEP has many objectives. It collects old books from libraries and schools and sells them to customers at a low price. SEP provides training for its 10 part-time employees. SEP’s manager wants to know how the introduction of a legal minimum wage might affect a business.

c) Outline two benefits to SEP of having part-time employees. [4]

d) Explain two reasons why training is important to SEP. [6] Reason 1: Explanation: Reason 1: Explanation: (e) Do you think the introduction of a legal minimum wage will always have a negative effect on a business? Justify your answer. [6]

IDT manufactures clothes for the mass market. It is a multinational company with factories in 4 countries. IDT has short-term and long-term financial needs. The Finance Director is analysing IDT’s statement of financial position. An extract is shown in Table 3.1. He has been asked to calculate working capital and to explain how an increase in non-current liabilities might affect IDT.

b) Calculate IDT’s working capital in 2023. [2]

FR is a multinational company. It has hotels in 18 countries. FR wants to expand into a new market and is planning to build another hotel. FR’s Marketing Director is considering how the market can be segmented. FR’s Financial Director is considering which source of finance to use to fund the expansion. He is also constructing a cash-flow forecast for the new hotel’s first year of trading.

a) Identify one cash inflow and one cash outflow for a business. [2] Cash inflow: Cash outflow: (e) Explain two ways a cash-flow forecast could be used by a business. Which is likely to be the most important way? Justify your answer. [6]

TDG is a bicycle retailer. It has 3 employees. TDG needs to maintain customer loyalty as the business sells in a mass market. Simon, the manager, knows managing cash flow is important. He is analysing TDG’s cash-flow forecast. An extract is shown in Table 1.1. Simon is considering ways for TDG to overcome its short-term cash-flow problem in September.

b) Calculate X and Y. [2]

c) Outline two reasons why managing cash flow might be important for TDG. [4] Reason 1: Reason 2: (d) Explain two ways TDG could overcome its short-term cash-flow problem in September. [6] Way 1: Explanation: Way 2: Explanation: