A toy store does not pay for its purchases of toys from manufacturers until one month later.Suppose that in October it starts to stock up in anticipation of a surge in toy sales in December,when is it most likely to have a negative operating cash flow?

Question

Quizplus · Accepted Answer

The store will have a negative operating cash flow in November because this is when it will need to pay for the increased inventory that it purchased in October. This means that during November, the store will have a large outflow of cash for inventory purchases, but it will not yet have received any cash from December sales to offset this expense.

A Toy Store Does Not Pay for Its Purchases of Toys