Read this ebook to understand the difference between cash surplus and cash deficit companies and learn the ways cash surplus companies can optimize their cash flows.
Companies can be classified into two types based on their cash position:
Based on cash position and financial situation, the drivers influencing the purpose, accuracy, and frequency of cash forecasting vary.
Learn the key differences between the two types of companies in detail:
The key steps to make effective decisions during a cash surplus situation are as follows:
Unforeseen circumstances have considerable effects on a firm’s revenue, and overall performance. Running scenario analysis provides a heads-up to identify the extent of those circumstances. It also helps to take preventive measures to minimize risks or grab opportunities from peak seasons to increase profit margins.
This can be done through the following ways:
Having good visibility into the cash flow holds utmost importance to identify blind spots that could have damaging repercussions, and make informed decisions accordingly. Governing cash flows, identifying risks becomes easier through global cash visibility.
Global cash flow visibility provides an array of benefits such as:
There are multiple ways to achieve global visibility such as:
It is necessary to perform variance analysis to analyze the accuracy and reduce the deviations through root cause analysis.
This can be done in the following ways:
Passing on profits to the shareholders, investors, and board members helps to maintain relationships. Paying dividends speaks volumes about a firm’s financial well-being and stability.
Creating accurate long-term forecasts secures the businesses through achieving greater ROI for the long run, and supports reinvesting to maximize profits. This puts them in a better position to pay dividends with the excess cash.
Paying the debts owed to banks or creditors in time stops accruing interest on them, and prevents penalties. If the creditors have a strong relationship with firms, there is also a possibility to negotiate and lower the debt owed. This enables cash surplus firms to prevent covenants that restrict spending money for executing their long-term goals.
Creating long-term forecasts helps to learn in advance about the available balance in the investment instruments and plan out long-term debt settlement.
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