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How does cash flow management affect a company’s resilience?
Asked on Dec 25, 2025
Answer
Effective cash flow management is crucial for a company's resilience as it ensures that the business can meet its financial obligations, invest in growth opportunities, and withstand economic fluctuations. Properly managing cash flow involves monitoring and optimizing the inflow and outflow of cash to maintain liquidity and operational stability.
Example Concept: Cash flow management involves tracking the timing and amount of cash inflows and outflows to ensure that a company can cover its expenses and invest in opportunities without running into liquidity issues. By maintaining a positive cash flow, a company can build reserves to handle unexpected expenses, reduce reliance on external financing, and take advantage of growth opportunities, thereby enhancing its resilience against economic downturns and market changes.
Additional Comment:
- Cash flow forecasts help predict future cash needs and identify potential shortfalls.
- Maintaining a cash reserve can provide a buffer during economic downturns.
- Efficient cash flow management can reduce the need for expensive short-term borrowing.
- Regularly reviewing cash flow statements helps in making informed financial decisions.
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