• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

In this essay, I would like to analyze the possible alternatives open to a medium sized components manufacturer who is facing a liquidity crisis to solve its problem.

Extracts from this document...

Introduction

Business Part Liquidity is the amount of cash or the assets that can be easily turned to cash. Having insufficient liquidity means the firm could not pay its bills on time. In this case, it may be unable to develop itself, even unable to survive. In this essay, I would like to analyze the possible alternatives open to a medium sized components manufacturer who is facing a liquidity crisis to solve its problem. Firstly, the firm needs to solve the problems inside it, especially in its production. Liquidity problem might be caused by poor management of stock such as ordering too many materials and producing too many products. So the firm could reduce its production when its stock is still sufficient to sell. Through this way, it can cut the cost of the production. But, the problem is some workers might be fired if reducing the production, and the firm needs to pay them redundancy costs. It would make the situation even worse. ...read more.

Middle

The interest of a short-term loan is much lower than an overdraft, but, in another hand, it is much more difficult to get. These two solutions might not be much useful because they are both short-term, the firm might not solve its problem before they are due. And the long-term loan is better with an even lower interest. Besides, not all the business can loan from the bank. It is much easier for the public limited company rather than sole trader or partnership. Secondly, the track record of its success is very important because a good record could make the bank confident to lend the firm money. Also, it is very difficult for the firm to borrow money from the bank when the economy is in a recession. To borrow money from the bank, the firm has to make a cash flow forecast which shows its future development and would make the bank confident to lend it money. ...read more.

Conclusion

Liquidity problem is dangerous to the firm because it will force the business to fail if the firm cannot pay the bills on time, so the firm could negotiate with their suppliers about longer credit of its payment. This would work to some extent, but it would be detrimental if its credit reputation becomes low. The suppliers may stop selling it materials, which would make its production suspending. Also, there are some other possible alternatives open to the firm. It could sell some assets to get money and cut its purchases to retain cash. But these would cut down its productivity and make it unable to develop in a period of time. To conclude briefly, applying for a long-term loan from the bank should be the best possible alternative for the firm to solve the liquidity problem. Managing debts, applying short-term loan and overdraft and negotiating delaying payment are considerable. Such ways as selling assets or reducing purchases are rather detrimental for its further development, but it should know that survival is its basic objective, if it fails in the ideal solutions, it has to do so. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Financial accounting

    Mar 31 Returns in 12.60 Mar 31 Balance c/d 173.60 234.50 234.50 Apr 01 Balance b/d 173.60 15 Stock A/C � Mar 31 Trading 38.00 Sales Ledger Office services Mar 1 Sales 338.40 Mar 17 Sales return 84.60 Mar 31 Balance c/d 253.80 338.40 338.40 Apr 01 Balance b/d 253.80

  2. I have chosen to base my assignment on the following two businesses: Sole trader- ...

    Very large plc can operate more cheaply than small companies as they operate on economies of scale. This means that large companies can mass-produce goods for sale and buy in bulk to save more money. E.g. like J-Sainsbury's. 4.

  1. english essay

    day in Africa due to poverty and it is not fair to bring them into the world to suffer.

  2. What Really Determine the Payment Methodsin M&A Deals.

    As a result, the market participants take the cash offer as the good news while the share exchange is viewed as bad news concerning the value of the bidding firm's assets. Hansen (1987) employs the adverse selection and Nash Bargaining Equilibrium theories to explore the importance of the asymmetric information proposition in the M&A financing market.

  1. Finance and Cash Flow Assignment.

    finance through it as there isn't any profit which is being retained. This source of finance in my opinion cannot realistically be an option of raising finance for Coulla for expansion because she has shown 'a net loss over the past two years' which shows that there is not much

  2. Business development

    I will do this by advertising so people know about Pink ladies. Also trying to breakeven so I am making a profit and trying to beat competitors. I will maximum my success by making sure I monitor my competitors, make sure staff are well trained and provide a good quality service.

  1. Theories of the Firm

    The output qc is that which is produced by the revenue-maximising firm when constrained by a minimum profit ?c. The difference between the maximum possible level of profit and minimum constrained profit (i.e. between ?p and ?c) is called "sacrificeable" by Baumol.

  2. Applied Business. Investigating a business Preston Manor High School

    make the school spend money on organising the new courses (purchasing books, resources, equipment etc). Ofsted ? Ofsted is the Office for Standards in Education, Children?s Services and Skills. They report directly to Parliament and are independent and impartial. They inspect and regulate services which care for children and young

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work