November 17, 2008
Many businesses fail through poor cashflow,even whilst their published accounts show a profit on trading activ
Can you answer jogy d's question about cash flow?:
Many businesses fail through poor cashflow,even whilst their published accounts show a profit on trading activities. Explain why this happens and explain what managers can do to avoid becoming insolvent through periods of high sales growth?
Liquidity Ratio
Many businesses fail through poor cashflow,even whilst their published accounts show a profit on trading activities. Explain why this happens and explain what managers can do to avoid becoming insolvent through periods of high sales growth?
Liquidity Ratio
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Comments on Many businesses fail through poor cashflow,even whilst their published accounts show a profit on trading activ »
It is really in the early stages of a company where the company has to spend money on inventory and equipment. If they have no cash flow, they can not buy the proper inventory to sustain sales. The failure usually is a result of not anticipating the cash that will be needed and properly fund the company. You can be profitable on a short term since inventory is not expensed until sold and equipment is written off over many years. Sometimes the company who has been in business for awhile has other issues. Maybe the inventory is obsolete and can not be sold. So the company needs new inventory to sell but doesn't have the cash to buy it.