The Quarterly Cash Flows from Operations for Two Computer Companies

question 2

Essay

The quarterly cash flows from operations for two computer companies are as follows:
$\begin{array}{|l|l|l|l|l|l|}\hline \text { (in Millions) } & 2012 & 2012 & 0012 & 2012 & 2013 \\\hline & \mathrm{Q} 1 & \mathrm{Q} 2 & \mathrm{Q} 3 & \mathrm{Q} 4& \mathrm{Q} 1 \\\hline \text { Firm A } & \$ 406.1 & \$ 204.2 & \$ 729.1 & \$ 440.2 & \$ 587.8 \\\hline \text { Firm B } & \$ 136.7 & \$ 243.1 & \$ 708.2 & \$ 87.9( & \$ 161.4) \\\hline\end{array}$
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

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Definitions:

Tort

A violation of another person’s rights or a civil wrongdoing that does not arise out of a contract or statute; primary types are intentional, negligent, and strict-liability torts.

Agent Liability

Refers to the legal responsibility of an agent to their principal, including obligations and potential for repercussions if the agent acts outside their authority or against the interests of the principal.

Principal

In law, the person who authorizes an agent to act on their behalf; in finance, the original amount of money invested or loaned.

Vicarious Liability

The liability or responsibility imposed on a person, a party, or an organization for damages caused by another; most commonly used in relation to employment, with the employer held vicariously liable for damages caused by its employees.