Concept explainers
Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To discuss: Reason of having a positive target cash balance by company, if cash doesn’t earn interest.
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Intermediate Financial Management (MindTap Course List)
- Why is not a bad thing to have negative cash from financing activities?arrow_forwardHow can a company’s operations generate a healthy profitand yet produce meager or even negative cash flows?arrow_forwardWhich of the following is not a basic principle of cash management? Keep inventory levels high. Invest idle cash. Increase the collection of receivables. Delay payment of liabilities.arrow_forward
- Which one of the items below is not a reason why cash does not equal profit? Cash Sales Prepayments Credit Purchases Credit Salesarrow_forwardtrue or false: financial managers should want to slow down disbursements.arrow_forwardCash management principles do not include: a.paying suppliers promptly. b.speeding up collection from customers. c.delaying payment of suppliers. d.earning the greatest return possible on excess cash.arrow_forward
- 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?arrow_forwardThe main reason why there should be cash in a company is for speculation. False or true?arrow_forwardTrue 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 Falsearrow_forward
- A fellow student studying managerial accounting says. The net present value (NPV) weighs early receipts of cash much more heavily than more distant receipts of cash. Do you agree or disagree? Why?arrow_forwardWhich of the following statements is false? O A. A positive cash conversion cycle means the company is paying its payables before receiving its receivables. B. A negative cash conversion cycle means the company is collecting its receivable before paying its payables. C. The cash conversion cycle is the length of time required for the company to recieve its inventory and then receive cash from the sales of its inventory. D. All of the above statements are true.arrow_forward6. Free cash flow Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? O The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows O The amount of a firm's available cash used to write off capital expenditures and depreciation Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as…arrow_forward
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