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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.
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below are some examples of cash that might be considered by a buyer as trapped if they could not be readily extracted without harming the business. • Cash in tills and petty cash. • Cash held by overseas subsidiaries where there may either be a tax cost of extracting cash from the subsidiaries (see sections International acquisitions and
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.
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.
Companies benefit from managing the challenge of trapped cash and avoiding its potential negative consequences by following a comprehensive approach. This is even more so for companies that have included managing liquidity risk and business best practice into their overall strategy.
Trapped Cash" in the Technology Sector: Accounting Disclosures of Permanently Reinvested Foreign Earnings & Foreign Cash Levels
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Jun 1, 2017 · We define trapped cash as cash and cash equivalents generated by foreign earnings and held by U.S. MNC's foreign subsidiaries due to concerns over repatriation taxes, and explain why trapped cash, permanently reinvested earnings, and foreign cash are not synonymous.
