Explain why very profitable firms sometimes have negative free cash flows. | Homework.Study.com (2024)

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• Explain why a profitable, expanding business may have negative free cash flow.
• Explain why maintaining more liquidity during a weak economy is costly.
• Why has the price/cash flow ratio become a popular measure of relative value during the recent past? What factors would help explain a difference in this ratio for two firms?
• Explain why market efficiency leads a manager to focus on NPV and free cash flow.
• Explain why companies use zero-balance accounts to make disbursem*nts.
• Why should firms offer cash discounts?
• Why is net working capital positive in a real economy?
• What effect did the company's expansion have on its free cash flow?
• Could a company's change in NWC be negative in a given year? Explain how this might come about. What about net capital spending?
• Briefly explain why cash flow models are important in the petroleum industry, and give two examples of their use.
• Why must cash flows be adjusted to a common day? If there are any results in not doing so, what repercussions can a firm face?
• Explain why the incremental cash flows at the firm level are important when we evaluate a project.
• Explain the factors that influence the optimal cash level for a business.
• Explain how it is possible for sales growth to decrease the value of a profitable company.
• Explain how it's possible for sales growth to decrease the value of a profitable company.
• Explain in logical terms why a weak economy can cause the net worth of individuals to decline.
• Why do finance companies face less regulation than do commercial banks? How does this advantage translate into performance advantages? What is the major performance disadvantage?
• Describe some measures a firm can take to decrease its cash conversion cycle. Can the cash conversion cycle be negative? Explain.
• Why can't a government create for profit businesses that compete with private corporations to help fund public finances?
• Discuss the reasons why a company should prepare a cash budget.
• Explain the differences between for-profit and not-for-profit corporations. Are the financial goals different?
• Why are equity earnings usually greater than cash flow generated from the investment? How can these equity earnings distort profitability analysis?
• A) Why are equity earnings usually greater than cash flow generated from the investment? B) How can these equity earnings distort profitability analysis?
• Explain why profit maximization is not the best goal for a company.
• Explain with examples how it is possible for sales growth to decrease the value of a profitable company.
• Explain in details why growth in sales and earnings makes a company and a companies stock so attractive?
• Why might cash flow estimation bias exists in the capital budgeting process? What can be done to counteract such a bias?
• Explain why many corporations invest in stocks and debt securities.
• Explain how return on assets could decline, given an increase in net profit margin.
• Explain the benefits of netting. How can a centralized cash management system be beneficial to the MNC?
• Explain briefly why corporations invest in stocks and debt securities.
• What are the effects of increasing the amount paid upfront when corporations make capital purchases with a focus on the benefits and the drawbacks?
• Why would business managers want to express future cash flows in today's dollar. How would this facilitate business decision making?
• Why don't all firms simply increase their payables periods to shorten their cash cycles?
• Explain how net profit differs from gross profit and operating profit.
• How are the operating and cash cycles of a firm different? Why are they important?
• Explain how capital reduces banking risks. Discuss the importance of cash flows and economic (market) value rather than accounting value.
• What discounted cash flow approach works best when investors are faced with mutually exclusive opportunities? Explain.
• Explain why many/most financial analysts use income statement measurements rather than measurements from the statement of cash flows to value businesses.
• Explain why and how a firm's cost of capital may decrease when the firm s stock is cross-listed on foreign stock exchanges.
• One option a firm usually has with any excess cash is to pay its suppliers more quickly. What are the advantages and disadvantages of this use of excess cash?
• Explain why holders of a firm's debt should insist on a covenant that restricts the amount of cash dividends the firm pays.
• Please explain how financial institutions serve the needs of consumers, small businesses, and corporations.
• Explain how financial institutions serve the needs of consumers, small businesses, and corporations.
• Explain why retained earnings have an associated opportunity cost.
• Why do many firms try to maintain a stable percentage of earnings retained?
• Why can a relatively small number of stock appreciation rights prove to be a material drain on the future earnings and cash of a company?
• Discuss the general functions involved in international cash management. Explain how the MNC's optimization of cash flow can distort the profits of each subsidiary.
• Discuss the general functions involved in international cash management. Explain how MNC's optimization of cash flow can distort the profits of each subsidiary.
• Why do people sell their e-commerce stores after building such high-profit margin businesses?
• Discuss the advantages and disadvantages of corporate debt.
• Why do companies engage in PIPE transactions?
• What are some of the reason for holding cash and how does that affect Investing idle cash? Provide a comprehensive response.
• Why would a firm ever forgo a positive NPV project? How can hedging help prevent this situation from arising?
• Why are small businesses so important to the U.S. economy? Explain.
• What are the principal reasons for the high failure rate among small businesses? Explain.
• Briefly explain how rapidly expanding sales can drain the cash resources of a firm.
• Explain how rapidly expanding sales can drain the cash resources of a firm.
• Explain why externalities prevent the attainment of efficiency, when goods are traded in competitive markets.
• Explain why a firm should not necessarily refund an outstanding debt issue the instant the net advantage becomes positive.
• Discuss why firms are willing to pay large fees to consultants for commodity and financial price forecasts if the futures and options markets are efficient.
• Explain in-depth why a decrease in Net Working Capital (NWC) results in a cash inflow to the firm. In capital budgeting situations where firms replace existing equipment, etc., would you expect to ever see changes in NWC? Why?
• What are the disadvantages of profit maximization and stockholder wealth maximization as the goals of the firm?
• Why is there a cost to retained earnings in investor-owned business?
• Explain why the timing and quantity of cash flows are important in capital investment decisions.
• Explain the difference between commercial banks and investment banks. Discuss their roles in the financial system, how each facilitates capital raising by firms, and how each earns profits. Discuss
• In finance, define cash conversion cycle (CCC). Explain why, holding other things constant, a firm's profitability would increase if it lowered its CCC.
• Why do firms with leverage, all else equal, pay less tax than forms without leverage? a.Because firms with leverage have fewer shares outstanding. b.Because of homemade leverage. c.Because interest is a tax-deductible expense. d.Because firms with
• Explain how does Depreciation Expense impact a For-Profit Corporation's tax liability?
• Discuss why financial analysts use a firm's weighted average cost of capital when equating future cash flows to their present value equivalent.
• What are the two definitions of cash, and why do corporate treasurers often use the second definition?
• Why is the ROE a more appropriate proxy of wealth maximization for smaller firms rather than for larger ones?
• Explain why an enterprise value multiple like EV/EBITDA is often described as being "capital structure neutral". Are there any dangers in using this measure as opposed to an earnings based multiple?
• Explain how securities firms differ from investment banks. In what ways are they financial intermediaries?
• Why may accounting policies with no direct cash flow consequences indirectly affect investors or creditors?
• How and why does working capital affect the incremental cash flow estimation for a proposed large capital budgeting project? Explain.
• Explain why the efficient markets hypothesis implies that a well-run company is not necessarily a good investment?
• Why isn't maximizing profits an equally significant objective? Explain.
• With some examples, why are discounted cash flow techniques considered the backbone of modern finance?
• Explain why securities firms have used a high level of financial leverage in the past, and how the leverage affects their expected return and their risk.
• Explain why limited leverage is good for business.
• 1. Why do businesses close or cease operating? 2. What are the primary reasons why businesses fail?
• Why are Business Managers using the Cost-Volume-Profit Analysis?
• Explain in detail why corporate governance fails.
• Explain why a nominal increase in an exchange rate that leaves the may still have an may still have an impact on the profit margins of a MNC.
• What is negative externality? In what ways does the existence of negative externalities justify the extra regulatory attention received by financial institutions?
• Leveraged buyouts are observed mainly in industries with relatively stable cash flows and products that are not highly specialized. Explain why.
• Explain what and how the cash flows are associated with a bond.
• Why break down contributions made by associate companies into operating, financial and non-recurring items?
• Is their explanation that it would 'control costs and optimize cash flow' sensible? Explain.
• From the perspective of a senior business executive, are cash dividends paid to shareholders good or bad, or both good and bad? How did you come to this conclusion?
• 1. Explain how characteristics of MNCs can affect the cost of capital? 2. From an investor's standpoint, have small companies, in general over the past, been more profitable than their larger brethre
• Explain how financial institutions impact consumer services. (consumers, small businesses, corporations)
• Describe two ways in which financial intermediaries help lower transaction costs in the economy.
• State the reasons why a company would not wish to distribute the profits.
• Explain why the cost of capital for a firm is equal to the expected rate of return to the investors in the firm.
• Discuss critically the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacks.
• Discuss the effect of increasing the amount paid upfront when corporations make capital purchases focusing on benefits and drawbacks.