Your managers showed you the income statement for your company. The income statement shows a net...
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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 • 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? 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 • 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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A company can make a net profit and still be short of cash due to various factors related to accounting methods cash flow dynamics and financial manag... View the full answer
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