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- Is it possible for a company to have significant net income in the same time period that net cash flows are negative? Explain.How can a company’s operations generate a healthy profitand yet produce meager or even negative cash flows?How to incease profitability in a service company if Operating cash does not cover debt?
- True or false? Using the cash flow statement, as a financial control, is not necessary when your organization is growing and producing a steady stream of profits. True FalseThe main reason for the failure of companies is the occurrence of a deficit in liquidity resulting from the decrease in cash inflows for this company. True FalseNegative net operating income implies a negative free cash flow investors. True or false
- Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?Select all of the following that will have a negative effect on the firm's cash flows? (Assume other variables remain constant, no change in revenues, etc.) O Increase in Inventory Decrease in Accounts Payable Increase in Accounts Receivable Increase in Working Capital Decrease in Accounts Receivable Decrease in Inventory Increase in Accounts Payable
- Is it possible for a company to show positive cash flows and still be in grave trouble?Which of the following statements is correct? A. If assets and spontaneously generated liabilities are not projected to grow at the same rate as sales, then the AFN method will provide more accurate forecasts than the projected financial statement method. B. Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast. C. A negative AFN indicates that retained earnings and spontaneous capital are far more than sufficient to finance the additional assets needed. D. AFN is defined as the funds that a firm must raise internally. E. The AFN equation for forecasting funds requirements requires only a forecast of the firm’s balance sheet. Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.Minimizing liquidity is an excellent way to meet a company's short-term financial obligations. 1) False 2) True