As firms get larger do you think that liquid assets will be a larger or a smalle
ID: 2682368 • Letter: A
Question
As firms get larger do you think that liquid assets will be a larger or a smaller component of total assets? Why? As firms get larger do you think that cash will be a larger or a smaller component of liquid assets? Why? As revenue and expenditure flows become more variable will liquid assets become a larger or a smaller component of total assets? Why? As revenue and expenditure flows become more variable will cash become a larger or a smaller component of liquid assets? Why? Compared to firms with low growth rates in sales, will firms with high growth have a higher or lower percentage of total assets held in liquid assets? Why? Compared to firms with low growth rates in sales, will firms with high growth have a higher or lower percentage of liquid assets held in cash? Why?Explanation / Answer
Cash flow from assets involves three components: operating cash flow, capital spending, and change in net working capital. Operating cash fl ow refers to the cash fl ow that results from the fi rm’s day-to-day activities of producing and selling. Expenses associated with the fi rm’s fi nancing of its assets are not included since they are not operating expenses. In the normal course of events, some portion of the fi rm’s cash fl ow is reinvested in the fi rm. Capital spending refers to the net spending on fi xed assets (purchases of fi xed assets less sales of fi xed assets). Finally, the change in net working capital is the amount spent on net working capital. It is measured as the change in net working capital over the period being examined and represents the net increase or decrease in current assets over current liabilities.
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