Unformatted text preview: 4. Depreciation and interest expense are two items in net income that aren’t in operating cash flow. Depreciation is a non-cash expense (reflects adjustments in value), and interest expense is a financing cost, not an operating cost. 5. Market values can never be negative because of bankruptcy laws. Nobody is going to pay a firm -$20 for a share of stock. Net worth can never be negative. So, liabilities can never be greater than assets in market value. 6. There can be a negative cash flow from assets if a company is expanding and investing. This would mean that it is spending cash to buy assets. 7. If a company’s operating cash flow is continuously negative, that would mean that the company is losing money. This would probably happen for a company that has recently started up. 8. A company’s change in networking capital could be negative for a given year if it needed less inventory, or if it becomes better at collecting its receivables....
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This note was uploaded on 03/12/2012 for the course ACCT 211 taught by Professor Kamlet during the Spring '08 term at Binghamton.
- Spring '08