The Quarterly Cash Flows from Operations for Two Computer CompaniesRequired:
1)Explain Why Firm B Has More Credit Risk Than

Question

The Quarterly Cash Flows from Operations for Two Computer CompaniesRequired: 
1)Explain Why Firm B Has More Credit Risk Than

Examlex · Accepted Answer

The Answer is 1.The quarterly operating cash flows of both firms exhibit seasonal volatility,meaning that operating cash flow levels change from quarter to quarter.Seasonal patterns in sales and operating cash flow are common in many industries,and the cash flow volatility produced by seasonal sales is itself a contributor to increased credit risk.In addition,Firm B's operating cash flows are lower than those of Firm A and are negative in the two most recent quarters.These two features of Firm B's operating cash flow make it a greater credit risk than Firm A.
2.Here are the revised operating cash flow amounts for each firm:

\begin{array}{|l|c|c|c|c|c|}\hline & \mathbf{2 0 1 2} & \mathbf{2 0 1 2} & \mathbf{2 0 1 2} & \mathbf{2 0 1 2} & \mathbf{2 0 1 3} \\hline & \mathrm{Q1} & \mathrm{Q} 2 & \mathrm{Q} 3 & \mathrm{Q} 4 & \mathrm{Q1} \\hline ext { Firm A } & \$ 406.1 & \$ 204.2 & \$ 729.1 & \$ 440.2 & \$ 587.8 \\hline ext { Firm B (revised } & \$ 336.7 & \$ 443.1 & \$ 908.2 & \$ 112.1 & \$ 38.6\\hline\\hline ext { \% change in quarterly}& ext { cash flow }\\hline ext { Firm A } & & 50 \% & 357 \% & 60 \% & 134 \% \\hline ext { Firm B } & & 132 \% & 205 \% & 12 \% & 34 \%\\hline\end{array}

Firm B now exhibits higher operating cash flows than Firm A in two of the five quarters,but the sharp decline in the two most recent quarters is still a cause for concern.The level of operating cash flows in these two most recent quarters,especially when compared to those of Firm A,make Firm B a greater credit risk.

The Quarterly Cash Flows from Operations for Two Computer Companies

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