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:

This Covid 19 situation resulted in major downturn for all the business activities all around the world.

Many businesses have suffered adversely in this pandemic due to lock down.

this situation has also affected the cash flows of an enterprise in multiple ways:

a • Because of the decrease in overall production activity and decreased demand of various products and services in market,

businesses are generating low revenues, and thus suffering losses and generating low cash flows.

b • it is hard for the businesses to recover the amount of receivables from their clients and customers ,

because of shortage of revenue in all class of society, and thus it may affect the operating cash inflows of business adversely.

c • many loss making businesses may go insolvent or may shut down in near future in this scenario,

and thus there is huge possibility of the increase in amount of uncollectable receivables ( bad debts) .

d • Supplier may refuse to provide the goods on credit terms,

and in this case , the purchases will have immediate cash outflows.

e. As business income slowed down , the investors may also suffer, in form of low dividends or no dividend.

Thus affecting the cash flows from Investments.

f. New businesses may have difficulty finding new investors during this situation ,

and thus affecting the cash flows from financing activities.

This, this covid 19 situation adversely affects the cash flows of an organisation in multiple ways.

Finish.