Question

“Businesses from all walks of life are haemorrhaging cash as the COVID-19 pandemic sweeps the globe.” This statement is mentioned in the required reading, explain what the statement above means in terms of its impact on ‘cash flows’ to be generated from operating, investing and financing activities. You may use a relevant example from your own community to answer this question and supported with evidence from the required reading. Your answer should be between 200-300 words MAX.  

Answer 1

Solution :

Many businesses got effected adversely in this covid19 pandemic.

And also the cash flows of business Enterprises got affected.

Impact of this covid19 situation on the cash flows of business , in reference to the given statement in the question, are as follows:

1.

impact on cash flows from operating activities :

a. Decrease in cash inflow from sales :

Due to the lockdown situations in this pandemic , the market has been largely closed and inoperative and this results in decrease in revenues.

Which in turn reduces the cash flow from the operating activities.

b. Increase in amount of bad debts:

As many businesses are suffering losses in this situation, Many can go insolvent or may even shutdown.

Thus there can be an increase in amount of uncollectible receivables and this may effect the cash inflows from debtors adversely.

C. Change in credit terms by supplier:

The suppliers may ask for the cash payment or may deny credit sale because of need of cash,

And in this case, cash outflow of a business may increase.

2.

Impact on cash flows from financing activities:

As the market activity is slow in this time, businesses may suffer lack of capital due to the non availability of cash funds.

New businesses may also have problems in raising capital through issuing of shares.

3.

Impact of cash flows from investment activities :

As many businesses are suffering losses and generating low income, the investors dividend income may also get reduced, resulting in a decrease in cash inflows from investment activities.

Finish.