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Discuss the premise that cash is the 'essential commodity' of a business, that cash lubricates the business and allows operation
Finance & Accounting
Pages 5 (1255 words)
(Name) (Tutor’s Name) (Date) Cash: An Essential Commodity of a Business Introduction Traditionally cash is considered as the lifeblood of a business because survival of a business is impossible without an adequate flow of cash. From an accounting perspective, cash is just an asset that helps business to properly exist.
Cash is particularly important for business because people and organizations will not be normally willing to accept anything other than cash in settlement of their claims against the business. This paper will specifically discuss the importance of cash management and cash planning in a business environment. Importance of Cash Financial experts indicate that cash is the ‘essential commodity’ of a business, that cash lubricates the business and allows operations to run efficiently. It is clear that cash is necessary to meet the day to day needs of a business. Evidently, a business firm cannot run its operations efficiently unless it has enough cash to pay its employees and debtors. In addition, adequate cash reserves are vital for business to invest in infrastructure and other expansion projects and to deal with unexpected contingencies. Experts opine that a firm’s cash flow is a key factor determining the long term success of the business. To illustrate, investors and shareholders give particular focus to the strength of cash reserves while evaluating financial position of a company. Clearly, companies lacking adequate cash reserves cannot offer attractive dividends to stakeholders and this condition in turn would adversely affect their long term sustainability. ...
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