For each of the following scenarios determine if it is an in

For each of the following scenarios, determine if it is an indicator of potential cash flow problems: (Hint: Review Chapter 5 PowerPoint notes on Slide 20 and Textbook on Pages 366-367.) Potential future cash flow problems Yes/No Growth in accounts receivable or inventories that is less the growth rate in sales. Increases in accounts payable that exceed the increase in inventories. Capital expenditures that substantially exceed cash flow from operations. a. b. c. d. Sales of marketable securities are less than e. Other operating current liabilities that grow at a f A reduction or elimination of dividend payments purchases of marketable securities. lesser rate than sales. A substantial shift from long-term borrowing to short-term borrowing g. CONTINUED ON NEXT PAGE

Solution

(a) If account receivables and inventories grow at rates below sales growth, it implies that more proportion of sales is cash based and less of that cash is tied up in inventory, thereby posing no future cash flow problems.

(b) A higher growth rate of accounts payable as compared to inventory implying lesser cash outflow (high accounts payable), thereby posing no future cash flow problems.

(c) Capital Expenditures above Operating Cash Flow levels imply negative Free Cash Flows, thereby posing a problem for future cash flows.

(d) Higher purchase of marketable securities as compared to sale imply higher cash outgo as compared to cash inflow, thereby being a problem for future cash flows.

NOTE: Please raise separate queries for solutions to the remaining sub-parts.