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3.7 Cash Flow (Benefits (By showing periods of negative cash flow, plans…
3.7 Cash Flow
Benefits
- By showing periods of negative cash flow, plans can be put in place to provide additional finance
- If negative cash flows appear to be too great. then plans ca be made for reducing these
- A new business proposal will never progress beyond the initil planning stage unless investors and bankers have access to a cash flow forecast
Limitations
- Mistakes can be made in preparing the revenue & cost orecasts or they may be drawn up by inexperienced entrepreneurs or staff.
- Unexpected cost increases can lead to major inaccuracies in forecasts. e.g: fluctuations in oil prices can cause the cash flow forecasts of even major airlines to be misleading
- Incorrect assumptions can be made in estimating the sales of the business, perhaps based on poor market research, & this will make the cash inflow forecasts inaccurate
The r'ship between investment, profit and cash flow
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