Thursday, December 15, 2011

How would having your cash balance in a current account affect the performance of a firm?

good for cashflow as you can draw your cash out when required but you would recieve less interest as oposed to a deposit account which would have a higher interest rate but probably require you to give notice whenever you want to make a withdrawal. not all your cash will be profit though as you will have liabilities, reserves and maybe dividends to pay from your cash balance. This is where careful cashflow management helps as if you get it right you can avoid taking out overdrafts etc to finance your cashflow requirements, saving the firm money. You also need to make sure that you have a good balance between what is tied up in assets and ready cash. if the assets arent working for the business it maybe better to liquidate them so you save on overdraft costs etc.

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