Question

“For those brave enough to act effectively now to stabilise and protect your business and maintain liquidity, opportunity will come.” Explain whether the Statement of Cash Flows is able to illustrate the ‘liquidity’ of an entity to its users and provide ONE recommendation how companies can maintain liquidity during this pandemic.

Answer 1

Yes it can.

Step-by-step explanation:

Statement of cash flow is a financial statement that narrates the pattern and the amount of cash and its equivalent that enters and leave the a company and eventually provides the amount of liquid cash the company has . This is important as the net income declared may not necessarily means the available cash due to the impact of some non cash transaction like depreciation and gain on the disposal of assets

During this pandemic period , one recommendation on how companies can maintain liquidity is by negotiating a longer payment cycles with suppliers.As most companies have lost their customers to the pandemic and are looking for ways of retaining and attracting new customers. A company can make use of the opportunity to negotiate for a favorable payment pattern . However , the term must be reasonable in order to avoid a bad reputation.