Global Food Retail Ltd, a multinational retailer headquartered in the UK, reported significant profits in 2023 but faced challenges meeting short-term obligations. The company's financial controller noted that profit figures don't always reflect the company's cash flow position.
Define the term 'cash flow'.
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Desert Pearl Resorts Ltd reviews its monthly financial data to track performance against predictions. This includes a strong focus on the company's cash flow forecast.
State two uses of cash flow forecasts
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Grecian Electronics PLC prepares detailed monthly cash flow forecasts for potential investors. These include the expected opening and closing balances.
Define the term 'opening balance'.
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Brazilian Mining Corporation prepares detailed predictions of its financial position. These include monthly opening and closing balances.
Define the term 'closing balance'.
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EuroMotors Manufacturing Ltd's finance team monitors actual cash flow versus the position predicted in the cash flow forecast each month.
State two limitations of cash flow forecasts.
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Following recent cash flow problems, Eastern Trading Corporation is seeking to optimise its working capital position by improving its cash inflows.
State two methods to improve cash inflows.
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Evergreen Distribution Plc reported difficulties maintaining adequate cash reserves. Its CEO is determined to maintain a healthy cash buffer in future.
Define the term 'cash buffer'.
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Swift Deliveries, a courier company, improved its cash flow in 2024 by selling unused delivery vans and leasing new ones instead.
Describe one benefit to a business of selling unused assets to improve cash flow
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EcoTech Solutions designs and installs renewable energy systems for residential and commercial clients. The company has seen steady revenue growth but faces cash flow challenges due to delayed payments from commercial customers and increased costs for raw materials.
To address these challenges, EcoTech is considering introducing incentives for early customer payments, implementing stricter credit policies, and reviewing inventory levels to reduce holding costs. Management aims to ensure financial stability while continuing to expand its market share in the renewable energy sector.
Explain one advantage and one disadvantage of implementing stricter credit policies at EcoTech Solutions.
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EcoTech Solutions designs and installs renewable energy systems for residential and commercial clients. The company has seen steady revenue growth but faces cash flow challenges due to delayed payments from commercial customers and increased costs for raw materials.
To address these challenges, EcoTech is considering introducing incentives for early customer payments, implementing stricter credit policies, and reviewing inventory levels to reduce holding costs. Management aims to ensure financial stability while continuing to expand its market share in the renewable energy sector.
Describe two factors EcoTech Solutions should consider when offering incentives for early payments.
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Urban Threads is a small business that produces ethically sourced and sustainably made clothing. The company’s recent cash flow forecast indicates potential shortfalls in the next quarter due to rising raw material costs and delayed payments from major retailers.
To address these challenges, Urban Threads is considering introducing discounts for early payments, negotiating longer payment terms with suppliers, and launching a flash sale to generate immediate cash inflow. Management is carefully reviewing these options to maintain operational stability while adhering to its ethical principles.
Analyse two advantages and one disadvantage of launching a flash sale to address Urban Threads’ cash flow shortfalls.
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Urban Threads is a small business that produces ethically sourced and sustainably made clothing. The company’s recent cash flow forecast indicates potential shortfalls in the next quarter due to rising raw material costs and delayed payments from major retailers.
To address these challenges, Urban Threads is considering introducing discounts for early payments, negotiating longer payment terms with suppliers, and launching a flash sale to generate immediate cash inflow. Management is carefully reviewing these options to maintain operational stability while adhering to its ethical principles.
Describe two factors Urban Threads should consider when negotiating longer payment terms with suppliers.
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Verde Flora specialises in selling rare and exotic plants, catering to collectors and gardening enthusiasts. The business has seen significant growth in online sales, but its recent cash flow forecast highlights a shortfall during the next quarter due to seasonal fluctuations in demand and rising import costs.
To address this, Verde Flora is considering several strategies: reducing its inventory levels, offering discounts to customers for early payments, and introducing new capital by securing an equity investor. Management is focused on maintaining its reputation for quality while ensuring sufficient liquidity to continue operations.
Explain one advantage and one disadvantage of offering discounts to customers for early payments at Verde Flora.
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Verde Flora specialises in selling rare and exotic plants, catering to collectors and gardening enthusiasts. The business has seen significant growth in online sales, but its recent cash flow forecast highlights a shortfall during the next quarter due to seasonal fluctuations in demand and rising import costs.
To address this, Verde Flora is considering several strategies: reducing its inventory levels, offering discounts to customers for early payments, and introducing new capital by securing an equity investor. Management is focused on maintaining its reputation for quality while ensuring sufficient liquidity to continue operations.
Analyse two advantages and one disadvantage of reducing inventory levels to improve Verde Flora’s cash flow.
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