Can a lucrative business balance its revenue with expenses (of buying some assets) to seem unprofitable on paper?
Is it possible for a company to have a positive cash flow and be unprofitable?
Yes, there are times when a company can have positive cash flow while reporting negative net income.
Does the balance sheet will tell us if the business was profitable?
Balance Sheet Information
A company’s balance sheet only contains information about the assets, including both short-term and long-term assets, the amount of equity invested in the company and all of the liabilities for the company at a specific point in time. It does not specifically list the company’s profits.
Is there a possibility for a company to have positive cash flow but still be in serious financial trouble?
Q: Is it possible for a company to show positive cash flows but be in grave trouble? A: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves lack of revenues going forward in the pipeline.
Under which one of the following situations can a company recognize revenue under generally accepted accounting principles?
According to generally accepted accounting principles, for a company to record revenue on its books, there must be a critical event to signal a transaction, such as the sale of merchandise, or a contracted project, and there must be payment for the product or service that matches the stated price or agreed-upon fee.
Can a company have positive cash flow even if its situation is bad or vice versa?
Your business can be profitable without being cash positive, and vice versa, you can also have a positive cash flow without being profitable. Managing a positive cash flow does not come without challenges, and it must become a priority, especially if you are a SaaS CFO or FP&A manager.
Can a company have profits but no cash?
Both profits and cash are important to businesses for different reasons. It’s possible to show a profit and have a negative cash flow. It’s also possible to have a positive cash flow and increasing sales but not make a profit.
How do you tell if a company is doing well financially?
7 Signs Your Company Has Good Financial Health
- Your Revenue Is Growing. …
- Your Expenses Are Staying Flat. …
- Your Cash Balance Demonstrates Positive Long-Term Growth. …
- Your Debt Ratios Should Be Low. …
- Your Profitability Ratio Is on the Healthy Side. …
- Your Activity Ratios Are In-Line.
What happens if balance sheet is not balanced?
Top 10 ways to fix an unbalanced balance sheet
- Make sure your Balance Sheet check is correct and clearly visible. …
- Check that the correct signs are applied. …
- Ensuring we have linked to the right time period. …
- Check the consistency in formulae. …
- Check all sums. …
- The delta in Balance Sheet checks.
What are the rules regarding revenue recognition?
GAAP Revenue Recognition Principles
Identify the obligations in the customer contract. Determine the transaction price. Allocate the transaction price according to the performance obligations in the contract. Recognize revenue when the performance obligations are met.
What is the rule of revenue recognition?
Revenue recognition is an accounting principle that asserts that revenue must be recognized as it is earned. So the question becomes: when is revenue considered “earned” by a company? Revenue is generally recognized after a critical event occurs, like the product being delivered to the customer.
When should revenue be recognized Are there exceptions to the general rule?
1 Answer. Revenue should be recognized when sales take place either in cash or credit and /or right to receive income from any source is established. Revenue is not recognized, in case, if the income or payment is received in advance or the. payment is actually received from the debtors.
How can a profitable firm have negative cash flow?
You can make a net profit and have negative cash flow. For example, your bills might be due before a customer pays an invoice. When that happens, you don’t have cash on hand to cover expenses. You can’t reinvest cash into your business when you have negative cash flow.
Why is it not necessarily bad for the cash flow from assets to be negative for a particular period?
Why is it not necessarily bad for the operating cash flow to be a negative for a particular period? It’s probably not a good sign for an established company to have negative cash flow from operations, but it would be fairly ordinary for a start-up, so it depends.
What does it mean when a company has a positive net cash flow from its financing activities?
A positive number for cash flow from financing activities means more money is flowing into the company than flowing out, which increases the company’s assets.
What is positive investing cash flow?
Positive cash flows are divestments of, or sale of, these assets. Financing: Cash flows from financing. This refers to money received as debt or equity (e.g., bank loans, capital contributions from shareholders). Incurring debt and receiving contributions are shown as positive transactions.
Should cash flow from financing be positive or negative?
The cash flow statement looks at the inflow and outflow of cash within a company. If a company’s business operations can generate positive cash flow, negative overall cash flow isn’t necessarily bad. Cash flow from financing activities is one of the three categories of cash flow statements.
What is one way that cash flows from investing activities are the opposite of cash flows from financing activities?
Cash flows from investing activities frequently reflect cash flows related to cash the company has loaned to others, whereas cash flows from financing activities frequently reflect cash flows related to cash the company has borrowed from others.
When should revenue and expense be recognized in the accrual basis?
Under the accrual basis of accounting, revenues and expenses are recorded as soon as transactions occur. This process runs counter to the cash basis of accounting, where transactions are reported only when cash actually changes hands.
Which of the following are the ways that a company can finance the purchase of assets quizlet?
Which of the following are the ways that a company can finance the purchase of assets? A company may finance growth by issuing additional shares of stock, called equity financing or through borrowing, called debt financing.
What is one way that cash flows from investing activities are the opposite of cash flows from financing activities quizlet?
D) Cash flows from investing activities frequently reflect cash flows related to cash the company has loaned to others, whereas cash flows from financing activities frequently reflect cash flows related to cash the company has borrowed from others.
Which one of the following items is not generally used in preparing a statement of cash flows quizlet?
Which one of the following items is not generally used in preparing a statement of cash flows? Adjusted trial balance. a noncash transaction that is not reported in the body of a statement of cash flows.
What is discretionary flow?
Discretionary cash flow is the money left over once all capital projects have been funded and required payments such as wages have been made. Discretionary cash flow can be used to pay cash dividends, provide bonuses to employees, buy back common stock, and pay down debt.