Question

What might be a critical role of positive cash flow relative to new product development. Explain

Answer 1

Cash flow is the money that flows in and out of the business during a specified period and which has a major impact on liquidity of the organisation. A cash flow may be negative or positive. Positive cash flow is considered favourable for the business, it means more money is flowing into the business than spent.

Cash flows helps in product or business forecasting . It helps to anticipate the affects of the planned business changes. New product development is one of the riskiest decision taken by the firm. Positive cash flow relative to new product development not only helps the product to grow in its product life cycle but also helps that to survive in the market, through this the shareholders value will be improved and the firm will be able to attract many investors into the firm as such the risk will be divided and reduced.