Question

​​​​​​ hi, my course is business finance

1. Why is it important for firms to monitor and control cash flow?

Answer 1

It is important for business to monitor and control cash flows because-

A. Cash flows reflect the liquidity of the business and when the business will be generating a higher amount of cash flows it will be helpful in maintaining a liquidity for the longer period of time and it will also help in meeting up with debt repayment.

B. it is important for controlling and monitoring cash because it will be providing the business with a higher flexibility in selection of various projects because it will be important to finance the projects with the internal financing and the cost of capital is high externally.

C. Cash rich company will be finding it easier to get debt financing from the market because their solvency is considered more sound in the long run.

D. When there would be higher cash flows for the company, it will be meaning that the company is able to generate high valuation in the market because it is often believed that the cash is the king and there is a higher valuation for companies generating higher cash flows than profits in the markets

E. It is important to monitor cash flow in order to have a better solvency ratios in the long-term and will also help in managing with the adverse economic situations

F. Management of cash flows in a better way will be providing the company with a competitive edge.