Question
den is a new assistant controller at Big B Mechanical, a large construction company. Before Aden's recruitment, he was aware of BIG B's long trend
den is a new assistant controller at Big B Mechanical, a large construction company. Before Aden's recruitment, he was aware of BIG B's long trend of moderate profitability. The report on his desk confirms the slight, gut steady improvements in net income in recent years. He is facing the issue as he reviews the report is the decline and erratic trend in cash flow from Operations. Aden Sketched the following comparison ($ in millions)
2018201720162015
Income from operation $140.0$132.0$127.5$127.0
Net Income $38.535.0$34.5$29.5
Cash flow from operation $1.6 $19.0$14.0 $15.5
His sketch shows increasing profits but an ominous cash flow trend, which is consistently lower than be income. Upon closer review, Thom noticed three events in the last two years that, unfortunately, seemed related to:
*******8*******D
A) BIG B loosened its credit policy. In other words, Big B relaxed its credit terms and lengthened payment periods
B) Accounts receivables balance increased dramatically
C) Several of the company's compensation arrangements, including that of the controller and the company president, was based on reported net income
What is so Ominous about the combination of events that Aden Sees? If you were Aden, that course of action will you take?
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