For those brave enough to act effectively now to stabilise and protect your
business and maintain liquidity, opportunity will come.”
Explain whether the Statement of Cash Flows is able to illustrate the ‘liquidity’
of an entity to its users and provide ONE recommendation how companies can
maintain liquidity during this pandemic.

One important financial reporting instrument for measuring and assessing an organisations liquidity risk is the Cash Flows statement. It speaks to the availability of cash in the short term, and or assets that can be readily converted to cash.

In other words, when a business has immediate financial obligations, cash refers to those resources that can be used to satisfy them.

An understanding of cash flows is crucial to business success because it:

provides a clear picture of an organisations cash status or liquidity;

helps business owners plan for how much cash expected in the future and when it is likely to come;

when organisations want to benchmark their performance against one another, it becomes very handy and useful. Banks, for instance, measure the ability of a business to meet it's liquidity requirements as a measure of eligibility to receive additional finance.

One way companies can maintain liquidity during this pandemic is to control overhead expenses. Necessity is the mother of invention. Companies can have their team brainstorm on creative ways to cut down on operational, administrative and production costs. Some costs which can be considered for downward revision are rent, labor costs (such as business performance incentives), professional fees, marketing costs, advertising costs, public relations etc.

Cheers!