Financial flexibility and the assessment of future cash flows

Abstract

Information on financial flexibility is important to consider when projecting the cash flows of an enterprise. The level of financial flexibility can influence inter alia the risk profile, solvency and rate of return of an enterprise. At present, a gap exists between the informational needs of users and the actual information on financial flexibility presented in the financial statements. This paper suggests several improvements to the existing disclosure of this type of information. Problem facing the financial analystIt is generally accepted that for an enterprise to survive, prosper and grow in the present inflationary and recessionary economic environment, good control should be exercised over cash flows.

Developing a framework for flexibility within organisations

“…In the majority of the literature and research on frameworks for flexibility, a functional approach is adopted. This means that some functions within the organisation, such as production flexibility, (Johnson, 1992;Abernethy & Lillis, 1995), financial flexibility (Donaldson, 1971;Heath, 1978;Koornhof, 1988) and marketing flexibility (Harrigan, 1985) is used as the basis of classification. Aaker & Mascarenhas (1984:75) suggest that the various functions of an organisation form a suitable basis for developing of a classification framework for flexibility.…”