Question

Why do firms have trouble managing their cash flow? What events cause a cash flow crisis?

How does a short-term cash flow crisis impact a firm's competitive strategy?

How does a short-term cash flow crisis spiral into bankruptcy for some firms?

Answer 1

Companies which are able to manage their cash flow are genrally successful. Many a times they find it difficult to arrange cash in case of requirement and such situation arises when prjection or cash budget are not prepared by the company. Events like upcoming loan obligation, end of credit terms with creditors etc

Short term cash crises may end up losing a important contract, not able to pay cash dividend, non honour of payment to creditors etc

Cash is the lifeline for the business. Lack of cash will make company stop its cash oriented operation and may therefore force small firms into bankruptcy.

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