Giorgio\'s Dinosaur Reenacting Conglomerate decides to research the sources of i

Question

Giorgio's Dinosaur Reenacting Conglomerate decides to research the sources of its cash flows to evaluate how the company is performing. After looking at his statement of cash flows, Giorgio discovers that: The company had negative operating cash flows in the last fiscal year, though these cash outflows were less than they had been in previous periods. The company has insignificant amounts of cash generated from operations The company has net cash provided by operating activities at less than net income. From the above information, we can infer that the Dinosaur Reenacting Conglomerate is most likely in which phase of the corporate life cycle? Why? What other hypothetical pieces of information would corroborate this fact?

Explanation / Answer

From the given information we can infer that The Dinosaur is in the last stage of Corporate Life Cycle. It is in the 'death stage'. We can not say how long it may continue in this stage.The company is not in a position to generate enough cash through sale of goods and services.

Operating cash inflow is nothing but cash generated from sale of goods and services. Operating cash out flows means payments to inventories, payment to employees and other manufacturing and selling expenses and taxes. It does not include depreciation and interest charges.

A healthy company awlays have a positive operating cash flow. But the Dinosaur Company is generating negative operating cash flows. That means, the company is not in a position to generate sales revenue at least to meat operating cash expenses (Depreciation is non-cash expense). The company is generating insignificant operating cash flows.

The company

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