Read cash-flow forecasts and their purpose
Explain why cash matters and identify inflows, outflows, net cash flow, opening and closing balances.
Section 5 · Financial information and decisions
Cambridge IGCSE Business 0264, 2027–2029 syllabus, Topic 5. Use the supplied data and show calculation steps. Candidates are not assessed on constructing cash-flow forecasts or financial statements. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous finance study is assumed. Identify the time period, whether a figure is a stock or a flow, and the units before calculating or recommending.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What is net cash flow for a period?
What you will learn
- Distinguish cash from profit
- Identify forecast elements
- Explain how a forecast supports planning
Cash pays obligations when they fall due
A business needs cash to pay wages, suppliers, rent, utilities and other obligations. It can report a profit yet lack cash if customers have not paid or funds are tied up in inventory or equipment.
A cash-flow forecast estimates expected cash inflows and outflows over future periods. It helps identify a possible shortage early so a business can plan, but it is an estimate based on assumptions, not a guarantee.
Read the balance movement
Net cash flow = cash inflows − cash outflows. Closing balance = opening balance + net cash flow for that period. The next period's opening balance is normally the previous period's closing balance.
Inflows may include cash sales, receipts from credit customers and finance received. Outflows may include supplier payments, wages, rent and equipment purchases. Keep the period and timing consistent when reading a forecast.
Pause and explain
How is a closing cash balance found?
Worked example
A business opens the month with $2,400, receives $7,500 and pays $8,100. Calculate net cash flow and closing balance.
Show the worked solution
- Net cash flow = 7,500 − 8,100 = −600.
- Closing balance = opening balance + net cash flow.
- 2,400 − 600 = 1,800.
Answer Net cash flow is −$600 and the closing cash balance is $1,800. The business used $600 more cash than it received but still ended the period with a positive balance.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A business starts the week with $900. It receives $3,600 and pays $4,150. Calculate net cash flow and the closing balance.
Give me a hint
First calculate inflows less outflows, then add that movement to the opening balance.
Compare my reasoning
- 3,600 − 4,150 = −550.
- Net cash flow is −$550.
- 900 − 550 = 350.
Net cash flow is −$550 and closing cash is $350. The forecast shows cash fell during the week but remained positive at the end.
Look for these in your work
- Net movement correct
- Closing balance correct
- Direction interpreted
A firm's sales are profitable on paper, but many customers will pay in 45 days and wages are due tomorrow. Explain why cash-flow information matters.
Give me a hint
Profit recognition and customer payment dates can differ.
Compare my reasoning
- The firm may record sales before collecting cash.
- Wages require cash on their due date.
- A forecast can show whether available balances and receipts cover payments.
The business may be profitable but not yet have collected the sales cash. Wages fall due before those receipts arrive, so a cash-flow forecast can reveal the timing gap and help it arrange a suitable short-term response.
Look for these in your work
- Profit and cash separated
- Due timing named
- Forecast use explained
A manager says a forecast's positive closing balance guarantees there will be no cash shortage. Explain why this conclusion is too strong.
Give me a hint
Forecast figures depend on estimates and the timing within the period.
Compare my reasoning
- Expected receipts may be delayed or lower.
- Unexpected payments can occur.
- Check assumptions and interim payment dates, not only period-end balance.
The positive balance is an estimate, not a guarantee. Customers may pay late and costs may exceed expectations; the business should test assumptions and check whether cash becomes negative before the period-end date.
Look for these in your work
- Forecast uncertainty explained
- Two possible changes
- Timing within period considered
Common mistakes
- Calling cash flow the same as profit
- Subtracting the opening balance from net cash flow
- Treating a forecast as a guaranteed outcome
What can you explain now?
What is net cash flow for a period?
Compare with the explanation
Cash inflows minus cash outflows
It measures the period's net cash movement.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Why can a profitable business still be short of cash?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.