Sunday, December 4, 2011

How could you have good cash flow for several years and still result in bankruptcy?

An accounting problem: Looking at your statement of cash flows and income statement, your company does well in its cash flows, usually surpassing its peers. However, it can still go bankrupt. Why is this?|||People often confuse cash flow with $$$ that they can spend. Cash flow is used to pay bills as well as profits. When people spend their cash flow and forget that they have to make purchases with it they can create a financial disaster.

Sometimes they grow too fast. They can't handle the sudden growth and never are able to catch up so to speak.|||Debt.

Cash flow is great but if you go deeper and deeper into debt you will eventually reach a point where all of your cash goes toward your debt payments and you find yourself unable to keep up.

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