Harvesting is a deliberate decision to cut back expenditures of all kinds in order to maximize the cashflow.
options: True False
The correct answer and explanation is:
Correct Answer: True
Explanation:
Harvesting is a strategic decision typically made in the later stages of a business, product, or investment lifecycle. The goal is to maximize cash flow by reducing new investments and cutting expenditures related to growth, innovation, or expansion. Instead, the focus shifts to extracting as much profit as possible from existing assets before exiting the business or product.
Key Concepts:
- What Harvesting Means:
- In business, harvesting refers to scaling back marketing, product development, and other operating costs.
- It involves managing the business in a way that prioritizes immediate cash return over long-term growth.
- This is common when a company plans to exit a market, sell a product line, or liquidate assets.
- Deliberate Cost Cutting:
- The decision is intentional and calculated.
- For example, a company may stop spending on advertising or new features for a declining product, keeping only essential operations running to continue generating income.
- The business reduces capital expenditures and operating costs to free up and maximize net cash inflow.
- Applications in Strategy:
- Often used in decline phases of the product lifecycle.
- Harvesting may be part of a divestment strategy, where the cash can be used elsewhere in more profitable ventures.
- For investors, harvesting means withdrawing profits while the asset still has some value.
Conclusion:
Therefore, the statement “Harvesting is a deliberate decision to cut back expenditures of all kinds in order to maximize the cashflow” is True. It reflects a well-known strategy in both financial and managerial decision-making to optimize returns in the short term when long-term growth is no longer viable or desirable.