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:

Price Elasticity of Demand

A determination of demand's sensitivity to pricing shifts of a product.

Agricultural Risk Coverage Program

A U.S. government program that provides financial assistance to agricultural producers when crop revenues or yields fall below guarantee levels.

Agricultural Act

Legislation passed to regulate agricultural markets, support farm incomes, and provide price supports for farmers.

Food, Conservation, and Energy Act

A piece of U.S. legislation, often referred to as the 2008 Farm Bill, which governs agricultural and food policy, including conservation, energy, and support for farmers.