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The Quarterly Cash Flows from Operations for Two Computer Companies

Question 59

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The quarterly cash flows from operations for two computer companies are as follows:
 (in Millions) 20122012201220122013Q1Q2Q3Q4Q1 Firm A $406.1$204.2$729.1$440.2$587.8 Firm B $136.7$243.1$708.2($87.90)($161.4)\begin{array}{|l|c|c|c|c|c|}\hline \text { (in Millions) } & 2012 & 2012 & 2012 & 2012 & 2013 \\\hline & \mathrm{Q} 1 & \mathrm{Q} 2 & \mathrm{Q} 3 & \mathrm{Q} 4 & \mathrm{Q} 1 \\\hline \text { Firm A } & \$ 406.1 & \$ 204.2 & \$ 729.1 & \$ 440.2 & \$ 587.8 \\\hline \text { Firm B } & \$ 136.7 & \$ 243.1 & \$ 708.2 & (\$ 87.90) & (\$ 161.4) \\\hline\end{array}
Required:
1)Explain why Firm B has more credit risk than Firm A.
2)Suppose that Firm B's cash flow was $200 million higher each quarter.Explain why Firm B might still be viewed as having higher credit risk than Firm A.

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