IGCSE Business Studies (0450)

Cash flow forecasts: interpret, amend and construct

What this topic tests, the mistakes that cost marks, and one exam-style question worked through step by step.

Key ideas and common mistakes

A cash flow forecast is specifically an estimate of future cash inflows and outflows, not just a record of past cash movements or only one side (inflows or outflows).
Common mistake: Omitting 'future' or both flows is the common mistake.
To find when a balance first turns negative, read the months in time order from the start and stop at the first bar that falls below the zero line.
Identify a source of short-term finance (such as a bank overdraft or delaying payments) rather than long-term solutions or increasing sales, since the problem is a temporary cash flow shortage, not a lack of profitability.
Distinguish between cash inflows (money entering the business, e.g. from sales, loans, or asset sales) and other financial terms like profit or non-cash items.
Common mistake: Students often confuse revenue or profit with actual cash received.
To find missing cash flow values, use the relationships: net cash flow = inflow minus outflow, and closing balance = opening balance plus net cash flow.
Common mistake: Students often forget to rearrange these formulas or mix up which value to add or subtract.
To find the closing cash balance from a bar chart, read the value at the top of the bar for the specified month, not the change from the previous month or the height above zero.

Define 'cash flow forecast'.

Try it first, then show the working

Answer: An estimate of the future cash inflows and outflows of a business over a period of time.

10 exam-style questions on Cash flow forecasts: interpret, amend and construct, each marked to the scheme.