Finance > QUESTIONS & ANSWERS > FINANCIAL MANAGEMENT STRATEGIES (INCLUDING CASE STUDY) 2023 UPDATE (All)

FINANCIAL MANAGEMENT STRATEGIES (INCLUDING CASE STUDY) 2023 UPDATE

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Cash Flow Management - ANS-the movement of cash in and out of a business over a period of time. Matching cash flow in with cash flow out is essential. Examples of inflows and outflows: Inflows: S... ales, Cash Payment for accounts receivable, Commissions received, Sales of assets, Proceeds from issue of shares, Interest received (investments/loans, etc.), Dividends received. Outputs: Payments to suppliers - raw materials/finished goods, etc., Interest on loans, Operating expenses - wages/salaries; raw materials/finished goods, Drawings, Purchase of assets, Loan repayments. Cash Flow Statements - ANS-Provides a link between the income statement and balance sheet. indicates the movement of cash receipts and cash payments resulting from transactions over a period of time and can identify trends and can predict change. can show whether a business can: - Generate a favorable cash flow with inflows exceeding outflows - Pay financial commitments as they fall due - Have sufficient funds for future expansion or change - Obtain finance from external sources when needed - Pay drawings to owners or dividends to shareholders Management Strategies - ANS-Distribution of Payments, Discounts for early payment, factoring. Distribution of Payments - ANS-involves distributing payments throughout the month, year or other period so that large expenses don not occur at the same time and cash shortfalls do not occur. Advantages: More equal cash outflow each month rather than large outflows in some months Disadvantages: The business must have the equity to allow them to do this as some businesses may rather choose when the make payment periodically when they have the highest cash inflows. Discounts for Early Payment - ANS-offering debtors a discount for paying before the deadline of the business's credit policy. Advantages: Encourages creditors to pay on time decreasing follow ups and debt collecting costs, affects cash flow status in a good way with more concrete assets rather than credits. Disadvantages: The business gets less money because of the discount Factoring - ANS-selling of accounts receivable for a discounted price to a finance or specialist factoring company. Advantages: Saves on costs involved in following up on unpaid accounts, improves working capital, immediate access to funds improving cash flow and gearing Continues... [Show More]

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