Question

I am of the opinion working capital and cash management is more important to a company, especially a young company, than profitability. Which do you think is more important, cash management or profit? Don't be afraid to disagree with me but defend your opinions in your response.

Answer 1

Answer:

Cash management- It is the process of inflow and outflow of cash. Cash management manages the cash in such a way so there is sufficient availability of cash in the business.

Cash and profit both are necessary and crucial for any business but Cash management is more important than Profit.

In a business, cash and working capital are most important than the profit. There should be enough cash in the business to pay for day to day expense, paying bills and salaries to employees. Cash is very important for financial stability and health of business. There should be adequate cash in the business every time, cash is very necessary to meet the short term liabilities. Negative cash is not good for financial health of company.

If a company that is running short of cash or out of cash faces many problems, it loses trust of shareholders, creditors and Public.

Profit is the excess of income over expenditures, profit is needed for company but not more than cash. If there is profit but no cash in the business then business cannot run. Creditors and banks will not grant loan to the company if it does not have enough cash.