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

Answer: The answer is given below

Explanation:

The cash flow statement is a vital aspect of the financial statement that is provided by every organization as it is useful in knowing helps the cash flows from investing, operating, and the financing activities. The cash flow statement is useful in understanding the movement of cash for the year, vital when making business decisions and also helps to measure liquidity of a company.

During the current pandemic that has stalled productive activities at most organizations, maintaining liquidity is very vital. One way of maintaining liquidity during this period is for a firm to have enough cash that will be necessary to maintain and keep the business running. Thia can be done by reviewing the current assets of the firm and looking at those that can be converted to cash and used on immediate basis. Also, in case the firm has marketable securities, such firm can sell the securities on order to maintain liquidity.