Given below is the cash forecast for June to August 2000 of Highflyer Ltd, a company which manufactures parachutes.
| | June | July | August |
| | £000 | £000 | £000 |
| Income | | | |
| Cash Sales | 2,500 | 3,000 | 3,300 |
| Sales on credit | 10,400 | 10,000 | 12,000 |
| | 12,900 | 13,000 | 15,300 |
| | | | |
| Expenditure | | | |
| Purchases | 6,560 | 6,300 | 7,570 |
| Rent | 6,000 | | |
| Expenses | 1,800 | 1,800 | 1,800 |
| Van | | 7,700 | |
| Drawings | 1,200 | 1,200 | 1,200 |
| | 15,560 | 17,000 | 10,570 |
| Bank Balance | | | |
| Opening balance | 700 | (1,960) | (5,960) |
| Add income | 12,900 | 13,000 | 15,300 |
| Less expenses | (15,560) | (17,000) | (10,570) |
| Closing balance | (1,960) | (5,960) | (1,230) |
Questions
1. Why is efficient management of working capital important to a firm? (6 marks)
2. Explain two ways in which the preparation of a cash budget may be useful to Highflyer Ltd.
(6 marks)
3. What conclusions can you draw from the above cash forecast? (8 marks)
4. What steps can a firm take to solve a cash problem? (10 marks)
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