Cambridge O Level Business Studies · Syllabus 7115 · Financial Information and Decisions
Cash-Flow Forecast
What is Cash-Flow Forecast?
A financial plan setting out the cash a business expects to receive and to pay in each future period, together with the opening balance, the net cash flow and the closing balance for each period. It is used to identify the timing and size of any expected shortage in advance, to arrange finance before the shortage arrives, to test the cash consequences of a proposed decision, and to monitor actual performance against what was planned.
This definition is part of the Financial Information and Decisions chapter in Cambridge O Level Business Studies.
Cash-Flow Forecast in context
Cash flow, working capital and profit measure three different things, and confusing them is the most common error in this chapter. A cash-flow forecast tracks expected cash receipts and payments each period, carrying the closing balance forward; working capital is current assets minus current liabilities, the finance available for day-to-day operations. Profit is revenue minus total costs over a period, and it is not cash, because a credit sale creates revenue today and cash only when the customer pays. Profitability relates that profit to revenue or capital employed, so a bigger profit on much bigger capital employed can mean the business has become less profitable.