I am not finding the answers to the questions in the Principles of Managerial Fi

Question

I am not finding the answers to the questions in the Principles of Managerial Finance book. For example:

The end-of-year parties at Yearling, Inc., are known for their extravagance. Management provides the best food and entertainment to thank the employees for their hard work. During the planning for this year’s bash, a disagreement broke out between the treasurer’s staff and the controller’s staff. The treasurer’s staff contended that the firm was running low on cash and might have trouble paying its bills over the coming months; they requested that cuts be made to the budget for the party. The controller’s staff felt that any cuts were unwarranted as the firm continued to be very profitable. Can both sides be right? Explain your answer.

Explanation / Answer

So in this case the treasurer could be right. The comapny might be having lesser Cash sales and more of credit sales. Also the payments to its creditors might be faster than payments from the debtors. This could lead to net cash outflow and reduction in cash balances.

So despite the fact that the comapny is making profits which the controller is right they may not be having sufficient working capital or cash to pay off their current bills or expenses like these which would require immediate cash payments.

The controllers might be looking at just the profit and loss statement and seeing the profits he might be believe that the comapny is in good shape to pay off all short term expenses, however the treasurer staff is in a correct position to actually evalauate the current cash position and make an estimate of how much cash they can disperse in teh short term.

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