Why do companies not declare cashflow problems earlier

Have you ever wondered why do companies always seem to declare liquidity problems only when it's too late?

Why does it seem that when a company declare cashflow problems, it's almost destined to be liquidated?

I will try to give you an alternative view in this area if you are still wondering why the above scenarios seem to happen all the time.

Let's say you are the CEO of a company and sales have reduced significantly but working capital continue to remain the same. This will affect net profit for the year and you might be forced to make the decision to dip into your accumulated reserves, your profits accumulated over the years since incorporation.

This is the first sign of a serious cashflow problem but you might be hoping that this is just a bad patch.

In order to have more cashflow, you decide to borrow some money from the bank so that whenever opportunities arise, the borrowed money can be used to invest in the proposed projects.

If sales do not increase and the margins continue to be squeezed and faced with interest payments, you might have to make the decision to declare that your business is no longer of a going concern.

Think of it this way now.

Your company now owe money to your creditors. Upon knowing that the money owed to them, which of the creditors would not want their money back first.

Once liquidity problem is made public, it'll only hasten the speed of your liquidation, instead of help it.

This is one of the main reasons why companies "SEEM" to collapse OVERNIGHT.

Technical Analysis on Dow Jones 14 March 2009

The last time I shared my opinion on a bottom is on 7th Jan 09 when Dow Jones seems to break a resistance of 8900. But in that post I did not refer to the charts. To read about my previous post, click here

However, this time round, I'd still see this as a potential rally but not the end of the bear run.

I've used arrows to indicate technical support formed in recent times and highlight the levels with a horizontal line, as you can see from the chart. This time round, I am in the opinion that we should have the "strength" to test 7,500 again, the resistance line formed since Aug 08, a breach of this resistance line would then lead me to rethink abt a sustained rally. Previously, a rally don't last longer than a week, 7 days and at this current time, we have about 3 days left.

I've removed all indicators in my analysis as I think indicators do not work in the current market. The tracking of the change in sentiments by indicators is too slow, in a way. Nevertheless, I do hope that most of you saw the bottom and caught the rally the last 2 days.

Finally, this is just my opinion and open for discussion/critics.

Behaviorial Finance - Endowment Effect

“I AM the most offensively possessive man on earth. I do something to things. Let me pick up an ashtray from a dime-store counter, pay for it and put it in my pocket—and it becomes a special kind of ashtray, unlike any on earth, because it’s mine.”

The endowment effect is a hypothesis that people value a good more once their property right to it has been established. In other words, people place a higher value on objects they own relative to objects they do not.

The endowment effect was described as inconsistent with standard economic theory which asserts that a person's willingness to pay for a good should be equal to their willingness to accept compensation to be deprived of the good. This hypothesis underlies consumer theory.

‘Thaler (1980) coined the term “endowment effect” to refer to the finding that randomly assigned owners of an object appear to value the object more than randomly assigned non-owners of the object.

Example: Look around your house. Pick something. How much would you sell it for? How much would people really pay for it? How much would you pay for something like this at a second-hand store?

Carling Cup Finals Winner - Man Utd

Sorry everyone about this post that breaks the flow of the BF series. But I cannot help but.....

I'm happy that the team i support got the 2nd Trophy for the season. Hopefully they are get the CL like last season cause more or less the EPL is decided. It's really up to them to lose it and well, it's not in their blood to lose it easily.

To those who still do not know this team is MANCHESTER UNITED ! hahaha!