Q3Q - Intermediate Accounting (Kieso)

Question

Question: A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?

Step-by-Step Solution

Answer

Answer

Financial flexibility can be defined as meeting uncertainties by maintaining the amount and timing of cash flows. Financial flexibility reduces the risk associated with the business entity.

 

Step 1: Meaning of Financial Planner

A financial planner is an individual who helps a business entity or personal individual maintain its cash flow. Cash flow is maintained so the business entity can meet any unforeseen situation.

Step 2: Financial Flexibility

Financial flexibility can be defined as the business entity's ability to maintain the time and amount of cash flow to meet the uncertainties. 

Step 3: Importance of financial flexibility

Financial flexibility is essential for the business entity because it lowers the risk to the business entity. It reduces the risk of failure of the business entity.