Which one of these statements is true?
A)The cumulative finance surplus requirement is computed prior to adjusting for the minimum cash balance.
B)A financially sound firm will always have a positive quarterly net cash flow.
C)A negative cumulative cash surplus indicates a borrowing need.
D)Most firms plan on maintaining a zero cash balance.
E)The minimum cash balance generally increases on a quarterly basis.

Question

Quizplus · Accepted Answer

A negative cumulative cash surplus indicates that a company has spent more cash than it has earned. This signifies a net borrowing requirement to cover the shortfall. The other statements are false. For example, maintaining a zero cash balance is not a common practice as it may not offer sufficient liquidity to meet unplanned expenses. Similarly, the minimum cash balance may remain constant or change based on the company's cash flow needs and operations. A financially sound firm can have negative cash flow in a particular quarter when it incurs one-time expenses or invests in a growth opportunity.  The cumulative finance surplus requirement is computed after adjusting for the minimum cash balance.

Which One of These Statements Is True