Question

In: Accounting

Briefly discuss what are the factors that can affect your cash flow and business profitability? this...

Briefly discuss what are the factors that can affect your cash flow and business profitability?

this is cost accounting question i want detailed answer

Solutions

Expert Solution

Following Factors affect the cash flow and business profitability-

1.Recession-

This happens when there is very low level of demand, low investment, low business confidence and risisng unemployment.

2. Inflation-

A general & Substained rise in the level of prices over a period of time which reduces the buying power of money. Revenue and expenses both increases during the inflation affecting both cash flow and profitability of the business.

3.Exchange rate-

Exchange rate affects those business which import from other countries or Export to other countries. Fluctuation in Exchange rate affects the cash flow and foreign exchange gain or loss.

4.Deflation-

it refers to reduction of general level of prices in an economy. it is opposite to inflation.

5.Competition-

Other business or firms who are competing on the same industry can have negative impact on the cash flow and the profitability of the business.

6.Bad Debts-

Debtors are the perties who owe money to the business.They buy the goods from the business on credit. Bad debts is a financial risk that affect both the cash flow and profitability of the business.

7.Risisng expenses or Unforeseen expenses-

Expenses refer to any cost that occurs in the ordinary course of business. Unforeseen expenses are the expenses that the business did nit expect to be paying. Rising in the expenses and unforeseen expenses affect the cash flows and business profitability.

8.Interest Rate-

It is the rate of borrowing or the rate of return on saving. Change in rate of borrowing afftecs the cash out flow nad interest expenses and change in rate of return affect the cash inflow and interest income.

9.Taxes-

Taxes like income tac, corporation tax, GST affects the cash outflow and net income. More tax rate means more cash outflow and less net income or vice versa.

10.Environment or External factors-

External factors or industry factors like fiscal policy, political situation, etc affects the business cash flow and profit.


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