When Assessing the Performance of a Company, Users of Financial

question 89

Essay

When assessing the performance of a company, users of financial statements often look at the relationship between net income and cash from operations.
Instructions
a) Explain how it would be possible for a company to report a positive net income on the Statement of Income but a net cash outflow in cash from operations on the Statement of Cash Flows. Does the cash outflow in operations indicate that the company is in trouble?
b) Would the opposite situation be possible? Could a company that reported a loss on the Statement of Income report a positive cash flow from operations on the Statement of Cash Flows? Explain.

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Definitions:

Small Intestine

The part of the intestine where most of the digestion and absorption of nutrients occur.

Digestive Juice

Fluids produced by the digestive system that help break down food into absorbable nutrients.

Gallbladder

A small organ beneath the liver that stores bile, which is released into the intestine to help digest fat.

GERD

Gastroesophageal Reflux Disease, a condition where stomach acid frequently flows back into the esophagus.