Question

Manage cash flow is important, describe the method to manage cash flow with relevant examples. And discuss the statement of cash flow.

Answer 1

Following are the methods to manage cashflow:-

1.Ask customers to pay fast- If customers pay fast then it will resilveresilverthe problem of cash flow.

For example:-

Company is giving cash discount of 2%, if payment is done within 10 days.

2. Cut or delay expenditures:-

After cutting or delaying the expenditure, organization gets extra time to pay and hence improves the cash flow position.

Example:-

ABC company makes an arrangement with all suppliers to pay the the invoice after 7 days. This delay gives opportunity to pay the due later on and in the meantime it may receive the money.

3. Sell future revenue :-

Company can sell the future revenue so that it can get the amount before and it strengthens the cash flow position.

Example:-

XYZ company discounts its receivable for $1bn. It helps in increasing the cash flow and offsetting the need for future cash flows.

Statement of cashflow

Cash flow statement is a statement that summarises amount of cash and cash equivalents coming in the company and going out of company. It classfies the transactions into operating activities, financing activities and investing activities.

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