How can company make a net profit and still be short of cash

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Reference no: EM133731031

Discussion Post: Profit vs Cash Flow in Accrual Accounting

Your managers showed you the income statement for your company. The income statement shows a net profit margin of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.

Address the following issues in your discussion:

1) How is this possible?
2) How can a company make a net profit and still be short of cash?
3) In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?
4) How does the purchase of fixed assets or additional inventory adversely affect cash flow?

Reference no: EM133731031

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