Harry Company had negative cash from operating activities, positive cash from in

Question

Harry Company had negative cash from operating activities, positive cash from investing activities, and positive cash from financing activities. Which ONE of the following best describes Harry’s overall cash flow activities for the year?

a. Operations generated sufficient cash to finance the purchase of new buildings and to pay off existing debts.

b. New loans and new stockholder investment were sought to increase the total amount of property, plant, and equipment

c. in order to satisfy its cash needs for the year, the company was required to seek new financing and to sell some of its existing property, plant, and equipment.

d. Operating cash flow was large enough to pay for new buildings and to pay a large cash dividend to shareholders.

Explanation / Answer

Solution

Negative cash from operating activities means that the business is not generating enough cash from its regular business activities. The income from operations is not enough to meet its expenditure. A positive cash from Investing and financing activities means the business is selling its assets like plant and equipment and also taking new financing to meet its operating expenditure else it will not be able to survive.

So, the correct option is option C that is in order to satisfy its cash needs for the year, the company was required to seek new financing and to sell some of its existing property, plant, and equipment.

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