Question

How do soft rationing and hard rationing differ? What are the implications on growth and development, value, sales revenue, marketing of the firm if it is experiencing soft rationing? Hard rationing? Present your views using a real world business case. Discuss the implications considering COVID-19 crisis.

Answer 1

Capital rationing is the strategy of selection of most profitable projects in which compay wants to invest.Hard and soft rationing are the two types of restrictions which is faced by different companies during capital budgeting decisions.

Hard rationing occurs when company faces external restrictions in raising finance in external markets due to several resons whereas soft rationing occurs due to internal restrictions made in the policies of the company for availing different sources of finance however such restrictions can be modified according to the need of the company thats why it is called soft rationing.

Both soft and hard rationing will impact the growth, development, sales revenue,value marketing as the flow of funds gets restricted in both the scenarios how in case of hard rationing its impact is more in comparison to other.

In the current scenarios business are facing real trouble as due to coronavirus and subsequent lockdown everywhere the sales, revenue and value of firm has significantly decreased which results in hard rationing of the firm as due to this they will face difficulty in raising capital and funds and in order to avoid excessive debt in the structure they will face soft rationing.Liquidity will be the major issue that will be faced by the companies and corresponding capital rationing will lead to double trouble to be faced by companies.However in order to overcome current scenario company will change its current restrictions or policy i.e soft rationing however they will continue to face hard rationing.