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- Cash trap refers to a situation in which a company experiences a significant slowdown in its cash flow, leading to restricted liquidity and financial flexibility. This occurs when a substantial portion of a company’s financial resources becomes tied up in non-liquid assets, such as inventory, accounts receivable, or long-term investments.
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Aug 9, 2023 · How and why does trapped cash occur, and how can your enterprise leverage this capital for business growth? What is trapped cash? Trapped cash describes cash earnings that are held overseas, either due to regulatory constraints or tax rates.
In the realm of finance and accounting, the term “cash trap” holds significant implications for businesses’ liquidity and operational viability. This intricate concept highlights the challenges that arise when a company’s resources are tied up in a way that limits its ability to access cash.
May 2, 2022 · The most common meaning of cash trap is in accounting. When companies spend more and absorb more money than they generate, they are known to be in a cash trap even though they may be able to show profits on paper.
Defining Trapped Cash. The phrase ‘trapped cash’ generally describes all cash not available for a corporate’s daily cash cycle, but has traditionally been known in the market as referring to the following two main categories:
Oct 1, 2017 · The authors provide practitioners with a clear definition of trapped cash, permanently reinvested earnings, and foreign cash. Trapped cash comprises cash and cash equivalents generated by foreign operations and held outside the United States because of repatriation tax concerns.
This scenario is known as a “dividend trap” where a group is net cash and profit generative but cannot lawfully pay a dividend due to accumulated accounting losses. Dividend traps impact a variety of stakeholders.
Nov 9, 2015 · U.S. companies harbor some $2 trillion in “trapped cash” overseas to avoid repatriation taxes back home, and the issue is a “hot topic” in business and government.
