Cash management
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Traditional measures of financial and managerial accounting are often based on net income. However, net income is not the actual cash available to a given firm. As such, most bankrupt companies do not have sufficient liquidity (cash or assets easily convertible to cash) to cover pressing obligations. Discuss the relative importance of net income versus cash in the financial management of any company. Should we be focusing more on cash management? Why or why not.
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Response provides guidance regarding cash management
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Traditional measures of financial and managerial accounting are often based on net income. However, net income is not the actual cash available to a given firm. As such, most bankrupt companies do not have sufficient liquidity (cash or assets easily convertible to cash) to cover pressing obligations. Discuss the relative importance of net income versus cash in the financial management of any company. Should we be focusing more on cash management? Why or why not.
Yes one should be focusing more on the cash management than net profits. This is because the most important financial goal of the firm is to maximize shareholder wealth as reflected in the market price of the stock. This goal is in conformity with the best long-run interests of stakeholders and society in the long run. (Blackwellpublishing, 2009) As per tutor2u, "Managers of a business should create as much wealth as ...
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