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 False
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- Is it possible for a company to show positive cash flows and still be in grave trouble?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?Investors and creditors are looking for more than just profitability? What may be gleaned from the cash flow statement?
- Would it be possible for a company to report negative free cash flow and still be highlyvalued by investors; that is, could a negative free cash flow ever be viewed optimisticallyby investors? Explain your answer.A firm with positive cash flow from financing Is using their excess cash to pay down their debt, buy back stock and pay dividends Is using debt and/or equity financing to grow their asset base and/or cover negative cash flow from operationsRetained earnings are generated by the firm's internal operations and are immediately reinvested to earn more money for the company and its shareholders. Therefore, such funds have zero cost to the company. Is that statement true or false? Explain.
- What does a positive operating cash flow mean for a company? What do a positive cash flow from assets, a positive cash flow to creditors and a positive cash flow to stockholders mean? What do these positive cash flows mean for an expansion plan financed by debt and equity?(1) How could two companies with similar gross profitfigures end up with dramatically different net operatingincome? (2) How might a statement of cash flows helpa turnaround expert decide how to rescue a strugglingcompany?a. Discuss the factors that are likely to influence the desired level of cash of a company b. Outline the advantages and disadvantages of using short term debt, as opposed to longterm debt, in the financing of working capitalc. Why cash flows rather than profits are most desirable in financial management? d. Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditorsWhat steps may be taken to overcome these conflicts?
- Can a firm have income without also having a positive cash flow? Explain.Which of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2? a. Shareholder's required return rises with leverage. b. The WACC does not change as capital structure change. c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them. d. The WACC is determined by the riskiness of the company's business (assets). e. A firm can change its market value by splitting its cash flows into different streams.Explain how EBITDA differs from Free Cash Flows (FCF) and discuss the types of businesses for which this differences will be especially small or large?