During times of high inflation, companies should wisely deal with several day-to-day operating and financial decisions in order to negate the affects of high inflation on the company’s bottom line. The effects of inflation have an impact on not only the operational and financial decisions, but also on the human resources decisions. The following list provides a brief glimpse into the actions that need to be taken by the companies. Refer to our PPT on inflation to get a detailed insight.
Operations:
Smart cash management: Companies should invest in smart cash management by investing excess cash in land or other investment assets that yield a rate of return greater than rate of inflation. The value of cash held is lessened due to impact of inflation and hence a prudent strategy towards cash management will yield the required returns.
The other areas of attention are accounts receivables, inventory management among others. To understand the relation between inflation and these areas, refer to our PPT on inflation.
Finance:
Recalculations to account for inflation: Index payments and contracts should be recalculated such that the sales price reflects inflation adjusted prices. These adjustments will reflect the true value of these contracts, rather than an inflated value not accounting for the decrease in the value of currency.
The other areas of attention are long term no adjusting rates, future/forward contracts among others. To understand the relation between inflation and these areas, refer to our PPT on inflation.
Human Resources:
Labor management relationships require extra work as wages need frequent adjustments – any negligence might lead to labor unrest.
The other areas of attention are manager training and wage negotiations among others. To understand the relation between inflation and these areas, refer to our PPT on inflation.
Read about Inflation in India and How to survive and even thrive during inflation for both companies and individuals.
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