Your managers showed you the income statement for your company. The income statement shows a net profit
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Question:
Your managers showed you the income statement for your company. The income statement shows a net profit margin of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.
How is this possible? Please address the following issues in your discussion this week:
- How can a company make a net profit and still be short of cash?
- In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?
- How does the purchase of fixed assets or additional inventory adversely affect cash flow?
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