601. One of these rules requires organizing the statement into three sections that report cash flows resulting from operating activities, investing activities, and financing activities.602. When the Accounts Receivable balance increases it means that the amount of credit sales exceeds the amount of cash collected from customers.603. The net cash provided by operating activities is an important measure because it indicates how successful a company is in generating cash on a continuing basis.604. First, it enables them to better understand how their company’s financial results will be interpreted by stockholders and creditors for the purposes of making investing and lending decisions.605. In addition to financial ratios, managers should consider various internal factors, such as employee learning and growth, business process performance, and customer satisfaction as well as external factors like industry trends, technological changes, changes in consumer tastes, and changes in broad economic indicators.606. If a company’s liquid assets are not enough to support timely payments to short-term creditors, this presents an important management problem that, if not remedied, can lead to bankruptcy.607. Furthermore, a large and growing working capital balance may indicate troubles, such as excessive growth in inventories. Therefore, managers often want to minimize working capital while retaining the ability to pay short-term creditors.608. For now, you need to understand that if a company has positive financial leverage, having debt can substantially benefit common stockholders.609. Similar to the debt-to-equity ratio, as the equity multiplier increases, it indicates that a company is increasing its financial leverage.610. A manager who is skillful at analyzing these statements can learn much about his company’s strengths, weaknesses, emerging problems, operating efficiency, profitability, and so forth.611. The pursuit of profit normally involves some element of risk, so it isn’t really possible to maximize both safety and profit.612. The available theory and evidence are consistent with the view that stockholders control the firm and that stockholder wealth maximization is the relevant goal of the corporation.613. Because of globalization, financial markets have reached the point where trading in many investments never stops; it just travels around the world.614. Based on the definitions of current assets and current liabilities, this means the cash that will become available over the next 12 months exceeds the cash that must be paid over the same period.615. Liquidity refers to the speed and ease with which an asset can be converted to cash.616. Assets are normally listed on the balance sheet in order of decreasing liquidity, meaning that the most liquid assets are listed first.617. There is therefore a trade-off between the advantages of liquidity and forgone potential profits.618. More important, it is true in an economic sense: If the firm sells its assets and pays its debts, whatever cash is left belongs to the shareholders.619. So, financial leverage increases the potential reward to shareholders, but it also increases the potential for financial distress and business failure.620. What actually happened is that these charges were the result of accounting rule changes that led to reductions in the book value of certain types of assets.
