Evaluating Cash Management

a. You are thinking of investing in a company that reports its balance of cash and cash equivalents as almost 5O percent of total assets. Explain the effect this level of cash might have on the company’s ability to do the following:

1. Acquire operating assets for future growth 2. Repay existing long-term debt 3. Minimize the effects of seasonality or unexpected cash outflows 4. Earn an above-average return for its investors

b. If you discover that a company spent $1,500,000 expanding its plant and equipment during the year, but its operations generated only $500,000 of cash, what would you look for as sources of cash for the additional amount spent?

c. Dogma Corporation received an adverse opinion on its audited financial statements from its external auditor due to

“inadequate internal controls relating to cash.” Give three examples of internal control procedures that are considered important related to the receipt, handling, and disbursement of cash.