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NAME: KHIENG

EXAM-STYLE QUESTIONS PAGE 266


1.
a. Working capital is the capital needed to finance the day-to-day running
expenses and pay short-term debts of a business.

b. A= 1060-640= 42, B= -180=390=210

c. The owners of Cards4U should be concerned about the results shown in


the cash flow forecast because the closing balance in March is the highest
number compare to other months (January and February) which is
negative, and the closing balance in March is positive and the number
increase a lot, but the net cash flow in April is negative. The good things is
that in January, February and March the opening balance is negative but
in April the opening balance is positive which make the company doing
better than before which is a positive things.

d. The two ways the owners of Cards4U could improve the cash flow of their
business are cash-flow forecast and interpreting cash-flow statements.
For cash-flow forecast all the business activity results in either a flow of
cash into the business or a flow of cash out of the business. The survival of
any business depends on the cash inflows being greater than the cash
outflows. For interpreting cash-flow statements the most important on
any cash-flow statement is the one containing the closing balance. If a
business cash position is forecast to become negative for a short period of
time, management might decide to finance this with an overdraft.
However, overdrafts can be very expensive source of finance.

e. I disagree with Charlotte view that there is no need for cash management
because most business operate cash-flow management, which means that
they have the finance whenever they need it to pay their employees, or
their suppliers, and so on. Managing a businesss cash flow involves
making sure that enough cash is coming in to the business to cover the
cash that goes out of the business. Cash management is very important it
provide us many things and it make us prepare to pay for the bills and
know how much money do we use to pay for things, buying things and
keeping for retain profit or capital, so I strongly disagree with Charlotte
view that there is no need for cash management.

2.
a. The two reasons why businesses need cash are to pay for its employees
wages and to its supplier for goods and services.

b. Net cash flow is a cash inflow minus cash outflow.

c. March: Net cash flow= -30, Opening balance= -10, Closing balance= -40
April: Net cash flow= 20, Opening balance= -40, Opening balance= -20
NAME: KHIENG

d. The two benefits to ABC of managing working capital are working capital
measures the liquidity of a business. Liquidity is the ability of a business
to pay its short term-debts. A business, which does not have enough
working, will be illiquid. That means it cannot pay its short-term debts. If
this happens the business may have to borrow the finance require.
Another benefits is regular supply of raw materials, it ensures regular
supply of raw materials and continuous production.

e. It is better to have a positive cash flow as any temporary cash shortage


may cause any problems for the business and result in an increase in
borrowing costs. To prevent a negative net cash flows businesses need an
accurate forecast of the size and timing of cash inflows and cash outflows.
This cash-flows forecast enables businesses to identify any future time
periods when cash shortages may occur. If they want their company to do
better they need to make the closing balance become positive again by
reducing the payments and they need to promote their company well so
the credit sales increase and more profit coming into their company.