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“Whatsort of difficulty can you imagine the manager of an organizationwould be in, if the organization did not routinely prepare cash flowforecasts and working capital analyses?”

“Cashflow is a paramount feature of any business entity, especially forthe small medium enterprises and startups”[ CITATION Sam15 l 1033 ].An accurate cash flow forecast helps prevent insolvency issues inbusiness. Failure to prepare cash flow forecasts may result inadverse financial problems in an organization such as bankruptcy[ CITATION Las15 l 1033 ].A manager would be in a financial crisis becausethe company would have no cash to operate efficiently. A positivecash flow is required for the payment of employees, and purchase ofsupplies among others[ CITATION Sam15 l 1033 ].Therefore, an organization would be stuck in these routineoperations, resulting in a possible liquidation. Discrepancies andshortfalls are the immediate repercussions of manager’s failure toprepare cash flow forecasts. Moreover, the company would miss out oncredit advances from financial institutions and fail to generate theprojected profits.

Onthe other hand, working capital management and analysis of anorganization is helpful in ensuring that short-term debts andliabilities are covered. A manager would face increased liabilitiesand debts, which would have an adverse financial image for the firm.An increase in obligations is a clear manifestation that businessoperations are inefficient[ CITATION Las15 l 1033 ].The working capital analysis entails the evaluation of the currentassets and liabilities. Failure to arrange working capital financesin favorable manner results into overburdening of the firm withdebts, leading to financial instability[ CITATION Sam15 l 1033 ].As a measure of efficiency and liquidity of a company, a lowerworking capital ratio reflects poor performance and operationalactivities suchas revenue collection, procurement, debt, and inventory management. Afirm would not be able to cover its financial obligations, and itwould be on the verge of insolvency.

References

Lasher, W. R. (2014). Practical Financial Management. Boston: Cengage Learning.

Samonas, M. (2015). Financial Forecasting, Analysis and Modelling: A Framework for Long-Term Forecasting. London: John Wiley &amp Sons.

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