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You may be wondering what theories there could be about cash! We all know what cash is, and the more of it we have the better - or is it?? What we have to remember about cash is that it has an opportunity cost . If a firm holds too much cash in the bank, then that money is not working for it as hard as it could be. So in the same way that too little cash may be a problem, too much also has negative implications. There are various aspects to the firms cash management:- Liquidity Investment Cash flow Liquidity The firm has to ensure that it has sufficient cash for all its day-to-day activities. It needs to be able to pay its bills when they are due and pay its staff and so on. It therefore needs to have sufficient of its cash in a liquid form to cope with all contingencies. However, the more liquid a form the cash is in the less it will be earning for the firm. You could check this by trying to compare the rates that a bank or building soci...

Hopefully this is an obvious question as I am sure the quantity of it you have is important to you. In much the same way it is important to a business. However, in a business the term cash may have a broader meaning than it does to you as an individual. Cash is an asset to the business and is usually considered to be one of the current assets. The other current assets are stocks and debtors . Under the heading cash on the balance sheet may be included a number of items of varying liquidity. A small amount may actually be cash (or readies) held in tills or as petty cash, but the majority is likely to be held in various bank accounts. However, since money in current accounts rarely earns interest, if a business has a surplus of cash it may invest it in various ways. Some will have to be in very liquid accounts so that if necessary they can get at it very quickly, but some may be tied up for longer periods of time. As with the debtors, the amount of cash required ...

Part 3: Revision Questions All the questions below refer to the Cash Flow Forecast of GoodWood. It would be easiest to have a print out of this Cash Flow Forecast , from Part 2 , to be able to complete the first set of questions. Alternatively you could use the link below each question to look at the Cash Flow Forecast. You could save this section to disk before you answer the questions as this will save time on line. 1. In the introduction we stated that a Cash Flow Forecast is made up of three parts, these are: a). b). c). 2. All questions refer to the Cash Flow Forecast of GoodWood. (a) In which month are Debtor Payments the highest? (b) In which month is Total Expenditure the lowest? (c) In which month is the difference between Revenue and Expenditure the largest? (d) In which months is Revenue gre...

Part 3: Revision Questions All the questions below refer to the Cash Flow Forecast of GoodWood. It would be easiest to have a print out of this Cash Flow Forecast , from Part 2 , to be able to complete the first set of questions. Alternatively you could use the link below each question to look at the Cash Flow Forecast. You could save this section to disk before you answer the questions as this will save time on line. 1. In the introduction we stated that a Cash Flow Forecast is made up of three parts, these are: a). b). c). 2. All questions refer to the Cash Flow Forecast of GoodWood. (a) In which month are Debtor Payments the highest? (b) In which month is Total Expenditure the lowest? (c) In which month is the difference between Revenue and Expenditure the largest? (d) In which months is Revenue gre...

Welcome to the Biz/ed Cash Flow simulation. The aim of this resource is to develop an understanding of the main principles surrounding the issue of cash flow and to give you the opportunity to see if you can manage the cash flow of a company for a year! Cash Flow simulation structure Cash Flow simulation home - [this page] Positive cash flow Stable cash flow Negative cash flow PotArts Ltd. intro PotArts Ltd. game Cash flow is one of the most important aspects of any business. Cash flow should not be confused with profit - they are different concepts! Cash flow shows the money flowing into a business from sales, interest payments received, and any borrowings and the amount of money flowing out of a business through paying for wages, rent, interest owing, paying back loans, buying raw materials and so on. If the cash flowing into a business does not meet the cash flowing out, then eventually a company will be unable to meet its debts and could be forced out of business. Poor c...

When valuing the operations of a firm using a discounted cash flow model, the operating cash flow is needed. This operating cash flow also is called the unlevered free cash flow (UFCF). The term "free cash flow" is used because this cash is free to be paid back to the suppliers of capital. Calculating Free Cash Flow For a particular year, the unlevered free cash flow is calculated as follows: Start with the annual sales and subtract cash costs and depreciation to calculate the earnings before interest and taxes (EBIT). The EBIT also is referred to as the operating income and represents the pre-tax earnings without regard to how the business is financed. Calculate the earnings before interest and after tax (EBIAT) by multiplying the EBIT by one minus the tax rate. Note that the EBIAT represents the after-tax earnings of the firm as if it were financed entirely with equity capital. To arrive at the UFCF, add the depreciation expense back to the EBIAT, and subtract cap...