Explain what a situation that might be if the company is paper-rich, cash-poor as it relates to poor cash flow management. When and why does this happen?
A company can be paper-rich i.e. good profit in the books accounts but actual cash in hand is low if it's most the sales are on credit and if it has poor credit policy.
A company can book his revenue once it's product gets sold on credit or on cash. However, company should judge it's credit policy. Credit sales should done to the trusted customer only and those who have good track record. Customer can default and it will reduce the revenue booked by the company.
A company can have poor cash collection and it increase cash conversion cycle and will also increase payment cycle.
The above two reasons are the 2 main reason for which a company can be paper-rich but cash-poor.
Explain what a situation that might be if the company is paper-rich, cash-poor as it relates...