How does a decrease net working capital affect FCF? Overstates FCF Does not affect FCF Understates FCF It depends
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Supreeta N.
the focus on traditional financial statement is data rather cash flow. however cash flow is important to investors, managers, and stock analysts. therefore corporate decision makers and security analysts need to modify accounts data provided to them. an important modification is the concept of free cash flow(FCF). many analysts regard FCF ads being the single and most important number that can be developed from the accounts statement, even more important than net income. the equation for free cash flow is: FCF={EBIT(1-T)+depreciation and amortization]-[capital expenditures+NE operating working capital] cash flow is the cash flow actually for payment to all investors(stockholders and debtholders) after the company has made investments in fixed assets new products and . a negative FCF means that the company does not have sufficient funds to finance its investments in fixed assets and working capital, and that it will have braise new money in the markets to pay for those investments. negative FCF Is not always bad. if FCF is negative because the company is probably experiencing operating problem. exception to this might be startup companies, companies incurring significant expenses to launch a new product line, and high-ground companies with large capital investments.
Breanna O.
Which of the following statement/s is/are more accurate? a) Companies with an aggressive working capital policy usually do not have big cash reserves to take advantage of asset acquisition opportunities that may arise. b) Debtors’ time lag is an indication of how long it takes the company to convert its resource inputs into cash for companies that sell on credit. c) A company’s working capital typically consists of current assets, long term investments and inventory. d) Increase in sales will have no bearing on company’s working capital requirements. Choose the correct statement or combination of statements: a. Statements (c) and (d) b. Statements (a) and (b) c. Statement (b) d. Statement (a)
Rashmi S.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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