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 provided below

Explanation:

The cash flow statement is an important statement that every organization provides and it shows the inflows and the outflows of the cash and cash equivalents in the organization. It is useful in order to understand the cash movement in an organization, make vital business decisions and also measure organization's liquidity.

Maintaining liquidity during the current pandemic is important for every business and a way of doing this is for the businesses to have funds that will be enough to keep the business running during this period. It is vital for businesses to review their assets and look out for the assets that they can convert to cash which can be used for the operation of the business. Another method is for the business to sell its securities so as to maintain liquidity.