Below are trends in operation cash flows for three companies.Based on an analysis of operating risk,which company's management is likely motivated to have the largest ratio of cash to noncash Company 1 Company 2 Company 3 assets? $$\begin{array} { | l | r | r | r | r | }
\hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Total } \
\hline \text { Company 1 } & \$ 100,000 & \$ 150,000 & 50,000 & \$ 300,000 \
\hline \text { Company 2 } & 100,000 & 100,000 & 100,000 & 300,000 \
\hline \text { Company 3 } & 90,000 & 100,000 & 110,000 & 300,000 \
\hline
\end{array}$$
A)Company 1.
B)Company 2.
C)Company 3.

Question

Below are trends in operation cash flows for three companies.Based on an analysis of operating risk,which company's management is likely motivated to have the largest ratio of cash to noncash Company 1 Company 2 Company 3 assets? $$\begin{array} { | l | r | r | r | r | } 
\hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Total } \
\hline \text { Company 1 } & \$ 100,000 & \$ 150,000 & 50,000 & \$ 300,000 \
\hline \text { Company 2 } & 100,000 & 100,000 & 100,000 & 300,000 \
\hline \text { Company 3 } & 90,000 & 100,000 & 110,000 & 300,000 \
\hline
\end{array}$$
A)Company 1.
B)Company 2.
C)Company 3.

Quizplus · Accepted Answer

Company 1 shows a decreasing trend in operating cash flows, indicating higher operating risk. To mitigate this risk, its management is likely motivated to maintain a larger ratio of cash to noncash assets.

Below Are Trends in Operation Cash Flows for Three Companies