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Stagflation: What CEO's Need to Know?

We Stand with Ukraine.🇺🇦

Before Russia invaded Ukraine, our economic problem was inflation. A combination of excessive stimulus, large fiscal rescue packages, and expansive monetary policy.

Already now, CEOs are seeing the effects of the war on the global economy, raw materials, and supply chains on cash flow risk management. In addition to energy and food, Russia and Ukraine supply significant amounts of important materials and components for manufacturing, causing bottlenecks in the supply chains. The punishing sanctions enacted on Russia have forced hundreds of Western companies to stop conducting business there. The others have been hit by the fallout of severing their financial ties with the country.

Slower growth, weak stock markets, tougher investments, stagflation, and possibly a recession may be on the horizon. But that is the price we must pay for bad fiscal and monetary policies and a meritorious effort to keep Ukraine from Russian domination. Stagflation combines stagnation, slow economic growth, and inflation, high prices. This impact on cash forecast and cash flow risks. Stagflation strengthens monopolistic industries, and it creates new market opportunities for companies that can solve the bottlenecks on the current demand side.

Cash flow risk is now carefully followed by CEOs: how does the Cash Forecast look like if the higher production costs can't be added on top of the prices of products sold?

Cash flow risk is now carefully reviewed in many small and medium-sized businesses. CEOs are carefully following cash forecasts, both the last and the forecasted 90-day sales, spending, and cash forecast, due to sensitive situations. It's essential to understand how does the cash flow risk look like if the higher production costs can't be added on top of the prices of products sold.

If Central Banks lean toward taming inflation, we face higher interest rates and postponements of investments because of the higher discount rate and internal rate of return (IRR). Prepare for the future cash flow risk and ensure your business is running without the new external funding.

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