Chapter 6

http://www.cnbc.com/id/30901709

Summary:
Due to the recession, the auto company GM has been facing economic hardships for the past couple of months but held on readily. It had to borrow an additional $4 billion from the Canadian government on top of their previous $15.4 billion loan. It is believed that GM will be limping its way to bankruptcy in no time at all. However, there are many specialists that clarify the notion as being a way around the bush – minimizing the chances to being more in debt since the recession is hitting them hard. Either way, declaring bankruptcy would be better for the company’s financial position but wouldn’t really help much in other words.

Connection:
Chapter 6 is all about a business’ cash liquidity management associated with cash, short-term investments, and accounts. Apparently, GM does not appear to have a good liquidity position in cash management which is leading to the downfall of the company. This huge auto company will certainly be using the allowance method which recognizes the doubtful accounts that they will either not be able to pay off; or, cash that they might not receive back from other companies. This is a huge issue to their auto company because they don’t have a definite amount of cash inflow but have a constant outflow of cash. Their problem will only get worst if they don’t have a good positive cash flow which also helps the cash liquidity of the company stable.

Reflection:
GM is trying to hold on from declaring bankruptcy by the Canadian government due to its several billion dollar loans that even GM doesn’t know if they can pay it off. A company’s cash liquidity helps a company withstand harsh economic hardships if they are in need of cash. GM, for example, would only be able to prove their trust to other businesses if they can make payments in cash. Instead of putting it on accounts receivables for GM, other companies wouldn’t rely on GM paying them back. A corporation’s cash liquidity is what enhances the corporation in paying back their debts.

Article summarized by
- Jillian Mak