Our country has been increasing the debt limit. In short, the federal government

Question

Our country has been increasing the debt limit.In short, the federal government’s “cash flow from operations” (i.e. our tax money minus all of the programs it supports), is negative and has been for years.Rather than re-balancing cash flow from operations so that it is positive (or at least even), the federal government has been funding operations with “cash flow from financing activities”. In other words, the government has been borrowing money from our social security trust fund, and from anyone willing to buy treasury bills and treasury bonds (about 25% of whom are Chinese and Japanese).

-Why is cash flow from operations critical to any organization? Support your answer with evidence from Microsoft.

-What are your thoughts about the current federal budget crisis? How does it affect your capstone company and its industry?

Explanation / Answer

- Cash flow from operations is critical to any organization because it reflects How much your existing profit can be sustained with involving cash inflows and outflows as represented by operating activities such as deducting depriciation, amortization e.t.c. Current assets and current liabilties increase or decrease as is reflected by the statement. In short Cash flow from operations reflect how much your company can generate consistently by doing normal business or core business which is maintaining profits or same is giving them losses. Incase of microsoft their core business is to sell software and so, income generated by them will be through the software wheater held for long term and short term and expenses incurred on their research and development is also a deffered cost which they need to take into consideration for calculation.

- If these situations continue further it will lead to:

Effect 1.) Increase in the interest rate which will lead to less monetary flow for people who want to borrow money for the purpose such as House purchase, Other purposes such as education loan e.t.c.

Effect 2.) Higher inflation as people will face increase in goods and services as goverment will enforce more taxes in order to recover the lost amount from the people, so people will face decrease in their purchasing capacity although their income may rise but in actaullity real income does not rise.

These affect capstone company and its industry as companies growth gets shortend and they will not grow as per their capacity and job generation and new investment will be hard to get as people,banks and financial institution face the shortage of funds.This will result in difficulty in raising finance through Debt, Equity and other measures If same state of economy Prevails.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.