CAIE IGCSE Business Studies 5.2.1 cash and cash flow forecasts
Practise cash-flow questions by completing figures, interpreting balances and judging whether a proposed improvement is suitable.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Calculate inflows, outflows, net cash flow, opening balance or closing balance.
- Explain why a cash shortage can stop a business paying suppliers or employees.
- Justify whether faster customer payment or delayed supplier payment is the best solution.
5.2.1—The importance of cash and cash flow forecasts question 1
[Maximum number: 6]
ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP's financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.
Do you think making a profit is more important for a business than managing its cash flow? Justify your answer.
Award up to 2 marks for identification of relevant points.
Award up to 2 marks for relevant development of points.
Award up to 2 marks for a justified decision as to whether making a profit is more important for a business than managing its cash flow.
Points might include:
Profit:
- It is a source of finance [k] may increase opportunity for growth [an]
- Reward for risk-taking/allows dividend for owners [k] without it, owners will have less incentive to invest [an]
- Reward for enterprise [k]
- Indicator/measure of success [k]
- Important for long-term survival [k]
Cash flow:
- Need cash to pay day-to-day costs/ensures liquidity/help avoid cash flow problems/pay debt [k] otherwise might have insufficient funds/working capital to continue production [an]
- Sales may be on credit [k] therefore money received later [an]
- Reduced need for overdraft [k] which would add to interest costs [an]
Other appropriate responses should also be credited.
Justification might include:
Profit is a reward for risk-taking [k], without it owners will have less incentive to invest [an]. Cash flow is needed to pay day-to-day costs [k] to ensure sufficient inventory to continue production. [an] Managing cash flow is likely to be more important because a business can continue in the short term without making a profit, [eval] but without sufficient cash flow a business may be unable to operate and earn revenue [eval].
This is a general question so there are no marks for application.
Allow attracts investors/investment as a [k] or [an] once
Do not allow 'important for growth' without the idea that it is a source of finance/or for reinvestment.
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