Question

In: Finance

Question 14.2 Briefly define the following cash flow estimation concepts: changes in current Accounts

Question 14.2 Briefly define the following cash flow estimation concepts: changes in current Accounts

Solutions

Expert Solution

Changes in current account impacts the cash flow estimation.

Cash flow is the amount of cash and cash-equivalents that is coming in and going out of the company. Positive cash flow indicates that company has enough cash to repay it's debt, can do reinvestment, distribute dividends etc. Whereas, negative cash flow indicates that company spends too much on capital expenditures and it's operating expenses is not generating enough cash to repay it's debt.

Current accounts are the accounts that are for short duration, generally for less than one year like accounts receivables , accounts payable, inventories, marketable securities etc. that can be easily convertible into cash in short duration. They are generally shown as current assets and current liabilities on the balance sheet.

Following changes in the current account impacts the cash flow:

1) Accounts payable are a great source of cash. Making arrangements with suppliers can increase company's cash on hand.

2) Accounts receivables are recorded on the current assets of the balance sheet but have a great impact on cash flow. If a company reduce it's account receivable it will increase the cash flow.

3) Cash conversion cycle means a time that is required by a company to convert it's investment in inventory into cash flows.


Related Solutions

BRIEFLY DEFINE OR EXPLAIN THE FOLLOWING COMBINATIONS OF CONCEPTS AND THE RELATIONSHIP BETWEEN THE CONCEPTS: a....
BRIEFLY DEFINE OR EXPLAIN THE FOLLOWING COMBINATIONS OF CONCEPTS AND THE RELATIONSHIP BETWEEN THE CONCEPTS: a. marginal benefit, marginal cost, optimal allocation of resources b. scarcity, opportunity cost, and rationing device (explain the role of a rationing device and discuss two different types of rationing devices or allocative mechanisms) c. decreasing opportunity costs, increasing opportunity costs, constant opportunity costs       d. economic efficiency, technical efficiency, allocative efficiency e. consumer surplus, producer surplus f. demand price, supply price, market price, equilibrium price
Preparation of accounts and Cash flow statement. The following is a listing of the accounts of...
Preparation of accounts and Cash flow statement. The following is a listing of the accounts of Sally’s Struthers Co. at December 31, 2002. Cash                   $20,000 Accounts Receivable 30,000 Inventory (8 Struthers @ $5,000 each) 40,000 Prepaid Insurance 1,000 Vehicles           100,000 Accumulated Depreciation-Vehicles              36,000 Equipment           300,000 Accumulated Depreciation-Equipment        150,000 Security Deposits                                              3,000 Accounts Payable 12,000 Taxes Payable 10,000 Wages Payable    5,000 Rent Payable                                                     2,000 Common Stock (5,000 shares)               50,000 Retained Earnings           229,000 During 2003...
Briefly define each of the following concepts and briefly discuss the significance/relevance/use of each in cost...
Briefly define each of the following concepts and briefly discuss the significance/relevance/use of each in cost benefit analysis: - discount rate - replication method - net present value - horizon value - internal rate of return - sensitivity analysis
Briefly define each of the following concepts and briefly discuss the significance/relevance/use of each in cost...
Briefly define each of the following concepts and briefly discuss the significance/relevance/use of each in cost benefit analysis: - discount rate - replication method - net present value - horizon value - internal rate of return - sensitivity analysis
Define each of the following terms: a. Project cash flow; accounting income b. Incremental cash flow;...
Define each of the following terms: a. Project cash flow; accounting income b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization; expansion project; replacement project c. Net operating working capital changes; salvage value d. Stand-alone risk; corporate (within-firm) risk; market (beta) risk e. Sensitivity analysis; scenario analysis; Monte Carlo simulation analysis f. Risk-adjusted discount rate; project cost of capital g. Decision tree; staged decision tree; decision node; branch h. Real options; managerial options; strategic options; embedded options i. Investment...
The following cash flow estimation has been prepared by Dani, an executive of Sunny Berhad. (RM,...
The following cash flow estimation has been prepared by Dani, an executive of Sunny Berhad. (RM, thousands) YEAR 0 1 to 10 Initial cost (1,000) Units sold 100 Price/unit 15 Total revenue 1,500 (-) Cost of goods sold 800 Gross Profit 700 Operating expenses:      Depreciation 100      Interest expense 100 Income before tax 500 Tax at 40% 200 Income after tax 300 Dani has approached Danisha, his partner in the coming project to discuss on the figures. Their conversation are as...
Which of the following changes is considered a source of cash when preparing a statement of cash flow?
 Which of the following changes is considered a source of cash when preparing a statement of cash flow? An increase in property, plant, and equipment A decrease in accounts payable A decrease in inventories An increase in accounts receivable A decrease in accrued wages
Briefly explain the impact on a company’s Cash-to-Cash (C2C) cycle if they experience the following changes:...
Briefly explain the impact on a company’s Cash-to-Cash (C2C) cycle if they experience the following changes: i. An increase in accounts payable turnover ii. An increase weeks payable iii. An increase in weeks receivable iv. An increase in weeks in inventory
Briefly define, describe and discuss the following concepts: 1-  The four models for the varieties of change....
Briefly define, describe and discuss the following concepts: 1-  The four models for the varieties of change. 2- The SWOT analysis.
Consider the following capital budgeting and cash flow estimation problem. You have developed a new energy...
Consider the following capital budgeting and cash flow estimation problem. You have developed a new energy drink that uses various vegetables. The drink is called V-DRINK. You have an existing building that you are using to produce V-DRINK. The building is fully depreciated. You determine a need to buy $400,000 in equipment. Shipping and installation is an additional $50,000. Additionally you determine you will need to have $16,995 in inventory. What is the total initial outlay associated with the project?...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT