Cash-flow forecasting and working capital
| English | Chinese | Pinyin |
|---|---|---|
| cash flow | 现金流 | xiàn jīn liú |
| inflows | 流入 | liú rù |
| outflows | 流出 | liú chū |
| net cash flow | 净现金流 | jìng xiàn jīn liú |
| cash-flow forecast | 现金流预测 | xiàn jīn liú yù cè |
| working capital | 营运资金 | yíng yùn zī jīn |
| current assets | 流动资产 | liú dòng zī chǎn |
| current liabilities | 流动负债 | liú dòng fù zhài |
Cash is king
- A business can be making sales yet still run out of money to pay this week's bills.
- Cash flow 现金流 — money in and out — must be managed carefully, especially day to day.
Inflows are 40 and outflows are 52. What is the net cash flow?
Net cash flow = 40 − 52 = −12.
Cash inflows 流入 and outflows 流出
- Inflows: cash coming in (sales receipts, loans).
- Outflows: cash going out (wages, suppliers, rent).
- Net cash flow 净现金流 = inflows − outflows.
A cash-flow forecast 现金流预测 tracks the closing balance each month
Cash-flow forecasting
A forecast of cash in and out each month warns a business of a cash shortage before it strikes.
Opening balance 15, net cash flow −6. What is the closing balance?
Closing = opening + net cash flow = 15 + (−6) = 9.
The main purpose of a cash-flow forecast is to:
It flags cash shortages early.
The cash-flow forecast
- A cash-flow forecast predicts inflows and outflows month by month.
- It warns when the business might run short, so finance can be arranged in advance.
Worked example. Opening balance 8, inflows 30, outflows 35 → net cash flow = 30 − 35 = −5. Closing balance = 8 − 5 = 3. A small but positive balance — watch it carefully.
Build the six-month forecast
Drag the monthly cash in, cash out and the one-off oven purchase — does the bakery stay out of the red all six months?
A profitable business can still run out of cash.
Profit is not cash — credit sales and stock tie up money.
Working capital equals current assets minus current ______.
It is the cash available for short-term needs.
Working capital 营运资金
- Working capital = current assets 流动资产 − current liabilities 流动负债: cash to meet short-term needs.
- Too little working capital is a common cause of business failure.
Profit is not the same as cash. A sale made on credit adds to profit at once but brings no cash until the customer pays. A profitable business can still run out of cash.
You've got it
- net cash flow = inflows − outflows; the forecast predicts it month by month
- it warns of shortages early so finance can be arranged
- working capital = current assets − current liabilities; profit ≠ cash