Question

Why are cash flow and cash management so important for companies to be successful?

Explain why long-term financing is usually more expensive than short-term financing?

Answer 1

Cash flow and cash flow management are important for companies to be successful because-

A. these cash flow management will be helping the company in management of their debt financing and proper repayment of debt capital.

B. cash management will be helpful for the company in order to have adequate cash in hands which will be providing them with liquidity.

C. cash management is also important because it will help the company in order to remain solvent for a longer period of time.

D. cash management is important for the company because it will be seen as a sign of high creditworthiness by creditors.

Long term financing is more expensive than short term financing because-

A. It will generally obtained for a longer period of time

B. these long term financing will be having higher risk in case of those who are holding these bonds or who are giving loan finances so they will be demanding higher premium.

C. there is risk related to non payment of long term finances due to insolvency of the company in long run.

D. there is a higher probability of default on the long-term financing than the short term financing so they are costly.

E. long term financing are more exposed to interest rate risk and other macro risk than short term financing.