I need a positive response to the discussion below. Something that agrees and asks them to consider other options.
Company XYZ had cash flow problems that negatively affected the company’s growth. During the said year, the company almost went bankrupt due to poor cash flow. On one occasion, they spent 5 million a month with a cash reserve of only 2 million. The reason for their cash flow problem was their quick expansion and addition of assets. A contributing factor was that sales did not keep up with the investments they made. This reduced their profitability, leading to a substantial decline in their return on investment.
In order to achieve a more favorable cash position, and create a competitive advantage given the organization’s economic circumstances, Company XYZ should free up assets by liquidating or converting assets into cash. It is important to have funds available to finance operating expenses, liabilities, and investments. The company should also have a report that projects the future income to help them plan and prepare their future financial position to avoid a negative cash flow.
Cash is a key indicator of an organization’s financial health, and it is essential to the business’s daily operations and financial obligations. Per the course readings, “when you have cash in hand, you have flexibility; when you don’t have cash, you are limited. In other words, cash really is king.” When a large proportion of total income is tied up in assets, organizations may have trouble meeting their financial obligations, especially in an emergency situation. This will cause financial problems that will affect the profitability and growth of the company and it can lead the company to file for bankruptcy.
References:
Berman, Karen; Knight, Joe; & Case, John. (2008) Financial Intelligence for HR Professionals. Harvard Business School Press.