Report Sample on Effects of External Factors on Organizational Cash Flow

Introduction

Organizations depend on the external environment for assets used to accomplish their goals. These resources incorporate human resources, investment through debt and equity, and innovation, which are key to the company's financial development and performance (Ofori and Obeng, 2020). The external business environment that organizations operate in comprises opportunities and challenges that impact the business's operation. Today, most organizations encounter unrivaled difficulties in keeping up their monetary being and achievement (Mohsin et al., 2020). The international market is evolving, and new hierarchical practices are arising, hence, making businesses helpless against failure if they stay unaware of the patterns and changes in their outer environment (Mohsin et al., 2020). The advancement of business and change in management plan frameworks demands that businesses constantly adjust to these changes (Mohsin et al., 2020). It is significant for an association to increase some degree of command over external elements of the business environment in which it works.

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External parameters likewise impact the strategy of organizations. Therefore, understanding these elements empowers organizations to make suitable business decisions that empower success. An organization's business cash flow is basic to its endurance and its financial performance. Cash flow has been depicted as the backbone of each business (Ofori and Obeng, 2020). Money is needed to give the input needed to the consistent presence and development of each business. Cash flow is influenced by economic, political, sociocultural, technological, and legal factors (Ofori and Obeng, 2020). This paper investigates the effect that economic, political, and technological elements have on cash flows.

Economic Factors

Economic factors, for example, interest and inflation rates, influence organizations' business income (Mohsin et al., 2020). Inflation periods impact companies' working performance, management, and demand for money supply; hence, they need to effectively or inactively change their degrees of money possessions (Wang et al., 2014). Corporates' degree of money holdings is a harmony between the expenses and profits (Wang et al., 2014). Since cash is not a beneficial resource, particularly under inflated economies, money holdings might bring about deficiency of purchasing influence, which expands the expense of retaining money. As costs and interests increase, capital expenses increase. Therefore, financing currency requires higher rates of interest to make up for the deficiency of purchasing influence (Wang et al., 2014). While assessing a venture, the expected ROI is typically utilized as the rate of discount to change the measure of expected income to the current worth. This leads to a positive net present value (NPV) of big business ventures; as the estimation of venture openings and the prospective ROI of money, holdings are decreased (Wang et al., 2014). Therefore, the undertaking will lessen their money possessions for new ventures. Inflation may likewise influence a company’s money supply (Wang et al., 2014).

In the midst of inflation, firms need more cash to buy a similar measure of crude materials and different products, subsequently taking up a greater amount of their working capital, while they likewise create less cash through their working cycles. As costs keep on rising, firms may foresee further inflation. Subsequently, they will buy crude materials ahead of time to evade increments in expense or fill in as extra reserves (Wang et al., 2014). Others may invest on land to keep away from the deficiency of buying control and create extra income, which may bring about firms holding a lot of working capital and diminishing their cash possessions (Wang et al., 2014).In the capital market, an increase in costs may prompt increased interest rates and expanding vulnerability over investment income, so the consumers are more averse to put resources into stocks and securities, accordingly expanding stock costs and making it harder to raise capital (Wang et al., 2014).

Political Factors

Political factors, for example, the political atmosphere, taxation policies, restrictions on trade, and political dependability, influence business cash flows. Companies have little contribution to governments' monetary policies, work laws, foreign exchange guidelines, and government changes, yet these components extraordinarily influence the production cost, work relations, and pricing strategies (Ofori and Obeng, 2020). There are several examples of companies whose income position has been influenced by political structures. For instance, Honda was fined $70 million for infringement of security laws (Ofori and Obeng, 2020). The United States industrial policy on the size of organizations which offered incentives by excluding small companies from guidelines imposed on big companies, granting government contracts to small business ventures, and cutting on taxation for small businesses brought about high income for small ventures to the detriment of big companies (Ofori and Obeng, 2020). Telsa is another organization whose income position profited from the United States innovation policy. The approach included government interest in the automobile business to advance development. Telsa's income from financing action improved by a $465 million government loan in 2009 (Ofori and Obeng, 2020). The public authority also allowed tax breaks for vehicles bought in the United States, subsequently expanding deals, bringing about progress in Telsa's income from operations.

Technological Factors

These are factors that identify with the accessibility, improvement, and presence of innovation. Innovation influences business performance, while current advances improve the productivity of an association's activities (Goudarz & Francesco, 2017). Innovation assumes a huge part in a company's prosperity. Innovation is quickly evolving; consequently, associations should be imaginative, inventive, and versatile to the arising advances. Mechanical components that incorporate natural and environmental viewpoints, such as computerization, R&D actions, innovation incentives, and technological development, affect a company's cash flows (Goudarz & Francesco, 2017). Businesses receive technological advancements to gain preferences that will prompt better performance or remove a performance gap brought about by vulnerabilities in the business environment. Companies embrace development to change inward capacities to react to ecological demands, work proficiently and viably, and improve their cash flows, particularly under states of vulnerability and a quickly changing business environment (Goudarz & Francesco, 2017). Innovations are development strategy tools for organizations that look to enter new business sectors, and they lead to an expansion in the market share. Expanded efficiency and the advancement of new products because of technology upgrades a company's export status, thus improving cash flows. Additionally, technology empowers organizations to react rapidly to changes in the market or follow up on business offers before their rivals.

Conclusion

Business cash flows of an organization are the core of a business survival as well as its growth. They determine the financial performance of a company. The external environment in which businesses operate influences the cash flows through economic, political, and technological factors. Therefore, businesses must evaluate their external environments because they play a significant role in determining the income of an organization.

References

Goudarz, A & Francesco, C. (2017). Organizational Innovation, Technological Innovation, and Export Performance: The Effects of Innovation Radicalness and Extensiveness. International Business Review. 26. 324-336.

Mohsin, H. J., Ahmed, S. A., & Streimikiene, D. (2020). Evaluating the Financial Performance by Considering the Effect of External Factors on Organization Cash Flow. Contemporary Economics, 14(3), 406-415.

Ofori, A & Obeng, A. (2020). Effects of External Factors on Organizational Cash Flow: Evidence from Ghana. International Journal of Accounting and Financial Reporting.

Wang, Yanchao & Ji, Yu & Chen, Xu & Song, Chunlei. (2014). Inflation, operating cycle, and cash holdings. China Journal of Accounting Research.