In regards to cash flow, a firm should ideally have
A) enough money coming into the firm to cover the expenses in that period.
B) more cash flowing out than in since this represents growth.
C) to use short-term financing only two to three times a year.
D) a constant need for short-term financing.
E) most of its cash going to its customers.

Question

Quizplus · Accepted Answer

A firm should ideally have enough money coming into the firm to cover its expenses in that period to avoid any cash shortages or financial crises. This is known as positive cash flow, where the company generates more cash inflows than outflows. It is important for a firm's sustainability and growth. Having more cash flowing out than in (B) could be detrimental to the financial health of the firm, and relying on short-term financing (C, D) is not ideal for the long term, as it adds to the cost of capital. Most of its cash going to its customers (E) is not a desirable situation as it impedes the firm's capacity to invest in growth opportunities.

In Regards to Cash Flow, a Firm Should Ideally Have