Explain how the MNCàoptimization of cash flow can distort the profits of each subsidiary.

Rodrigo Lima

1. Rodrigo Lima
2. MondayFeb 20 at 11:55am

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Q2. Explain how the MNCàoptimization of cash flow can distort the profits of each subsidiary.

Market conditions are always changing over time, however, there is one thing that keeps always essential for every company, which is cash. Without the right cash flow optimization, MNCs can be considered profitable on paper but still be at a level of bankruptcy risk if they cannot afford to pay their bills. íall and medium businesses are especially prone to irregular cash flows and limited liquidity, making it crucial to pay close attention to working capital and set processes in place to manage it before challengesõch as a pandemicrise.(Parente, 2022). Multinational companies/ptimization of cash flows can change the profits of each subsidiary since changes in the foreign exchange rates won be favorable while collecting the loans, and interest won be earned by blockage of funds, which will force borrowings due to late receipts from group subsidiaries. Precise forecasting of cash flows is managing a shortage of funds to any subsidiary, facilitating the transfer of excess funds from one subsidiary to the ones with a cash shortage, updating correct information on the cash situation of each subsidiary, and also the correct management of credit lines that provide cash to subsidiaries and optimize cash flow. 

Reference:

Parente, E. (2022). Cash Flow Optimization: How Small and Medium Businesses Can Unlock Value and Manage Risk. Retrieved from https://www.toptal.com/finance/cash-flow-consultan…