1. a. What does it mean when cash flow from operations on a companys cash flow statement is negative? Is this bad news? Is it dangerous? b. What does it mean when cash flow from investing activities on a companys cash flow statement is negative? Is this bad news? Is it dangerous? c. What does it mean when cash flow from financing activities on a companys cash flow statement is negative? Is this bad news? Is it dangerous?

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A. Negative net cash from operations on a companys cash flow statement indicates the company is consuming cash. This could be due to an increase in account receivables and inventories and a decrease in accounts payable. While most would view negative cash flows as being dangerous, management can offset projected shortfalls through strategic planning and budgeting for seasonal or high growth companies for instance. Increases in account receivables could signify inefficiencies or overly favorable lending terms to customers. On the other hand, they could be indicative of projected strong sales growth.

B. Negative cash flow from investing activities means the company is consuming cash. The company has increased capital expenditures through purchasing property, buildings or equipment. Negative cash flows is typical of fast growth companies as they look to increase production capacity through new technologies or plant size. A positive cash flow could indicate a company is liquidating its assets and could potentially dangerous for new investors.

C. Negative cash flows from financing activities means a company is paying more to investors than it is raising from them. Negative cash flows would be dividends paid to shareholders or the repayment of debt. Positive cash flows could be the issuance of new debt and could indicate the company plans to grow. It is important to understand what is really going on within the company to determine whether a negative or positive cash flow from financing activities is dangerous for a company. Is the company following its strategic plan by returning profit to shareholders through dividends or is it expanding into a new market and raising cash?