Final answer:
Just-in-time inventory programs, better utilization of cash via computers, and increased use of point-of-sale terminals are all reasons for diminishing liquidity in modern corporations.
Step-by-step explanation:
Liquidity refers to how quickly a financial asset can be used to buy goods or services. Diminishing liquidity in modern corporations can be caused by several factors:
- Just-in-time inventory programs: These programs aim to minimize inventory and reduce costs by ordering goods only when they are needed. This can lead to lower cash reserves and limit the company's ability to quickly access capital.
- Better utilization of cash via computers: While computers can help optimize cash management, they can also tie up funds in investments or digital transactions, reducing the available cash for immediate use.
- Increased use of point-of-sale terminals: The use of point-of-sale terminals may result in faster payment processing and reduced cash on hand as more transactions are conducted electronically.
Therefore, the correct answer is option D: All of the options are reasons for diminishing liquidity.
Diminished liquidity in modern corporations can result from Just-in-time inventory programs, better utilization of cash via computers, and an increased use of point-of-sale terminals. These factors, along with financial decisions like borrowing or issuing stock, affect a company's liquidity by reducing the amount of cash on hand.
A reason for diminishing liquidity in modern corporations is due to the implementation of Just-in-time (JIT) inventory programs. JIT systems require careful planning and coordination for material to arrive exactly when needed for production. While this system minimizes holding costs and reduces the amount of cash tied up in inventory, it also means that companies have less liquid assets on hand. Additionally, better utilization of cash through computers and increased use of point-of-sale terminals can streamline financial transactions but may also contribute to reduced cash reserves, as money is more quickly moved out of the company's accounts to suppliers, creditors, and for other expenditures, leaving less liquid assets available.
Moreover, when firms need to access financial capital, they may borrow from a bank, issue bonds, or issue stock. Borrowing and issuing bonds require committing to scheduled interest payments, which can strain liquidity if income is insufficient. Issuing stock involves selling off company ownership and becoming responsible to the shareholders and a board of directors. These financial choices impact liquidity as they determine how much cash the company will have on hand versus how much is tied up in paying debts or in equity that is not immediately accessible as cash.