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Cash Flow And Early Exits 1

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Running head: CASH FLOW AND EARLY EXITS 1
Cash Flow and Early Exits
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CASH FLOW AND EARLY EXITS 2
Cash Flow and Early Exits
Question 1
The use of a firm’s working capital in explaining the concept of cash flow can be termed
as misleading. Cash flow analysis within a business focuses on cash and its equivalents. It seeks
to understand how the cash comes into the business and is used. On the other hand, the working
capital aspect focuses on the current liabilities and current assets held by a particular firm. The
current assets, as well as liabilities, will contain the short term liabilities and assets. The assets
are used by the business to ensure they can meet their current obligations (within the current
accounting year). Working capital is obtained by subtracting the current liabilities from the
current assets (AlShattarat, Nobanee, Haddad & Al Hajjar, 2017). It would be misleading to use
working capital in discussing cash flow without qualification. Cash flow only takes into account
cash and its equivalents while working capital takes into account current assets and liabilities.
Question 2
A capital intensive business is one that requires huge investments. The significant
investment is to be used in the current operations. For example, the oil industry can be termed as
capital intensive. In such sectors, the returns on investment are to be realized after a significant
period. At the current time, the cash flow can be considered as low since the return on
investment has not been realized. The cash flow would indicate that more money is used by the
business (AlShattarat, Nobanee, Haddad & Al Hajjar, 2017). In the long run, the business would
have an inflow of cash and the cash flow statement would capture the change. For mature
operations, the cash flow will be stable since expenditure can be matched with particular
revenues.
Question 3
More companies are facing acquisition in one or two years after being set up. It is a
worrying trend since the entrepreneurs are unable to remain in business in the long run. One of
the main reasons for the upsurge in the acquisitions is the lack of resources. Most startups cannot
maintain their operations in the long run. They have to seek individuals that can fund the
operations and continue serving the established markets. The current trend can also be tied to the
need among entrepreneurs to improve the community (AlShattarat, Nobanee, Haddad & Al
Hajjar, 2017). They will establish businesses that serve particular needs and sell them when they
feel that they have served their purpose. For example, one might come up with a gadget that
helps the community and sell it later since they have achieved their objective. The takeover of
young businesses can be attributed to the need to reduce competition.
Question 4
Businesses will try to focus on how much a particular customer is worth. That will help
them decide on whether to use their resources to try and get the consumers. The cost tied to a
customer depends on the products offered to the market. The consumers will gravitate toward a
business that serves their needs. As such, it can be said that a consumer’s worth depends on the
products offered by a business (Patel, 2018). Businesses have to invest in aspects such as
advertising and marketing to help them appeal to consumers. The cost of acquiring the

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Running head: CASH FLOW AND EARLY EXITS Cash Flow and Early Exits Name Institutional Affiliation 1 CASH FLOW AND EARLY EXITS 2 Cash Flow and Early Exits Question 1 The use of a firm’s working capital in explaining the concept of cash flow can be termed as misleading. Cash flow analysis within a business focuses on cash and its equivalents. It seeks to understand how the cash comes into the business and is used. On the other hand, the working capital aspect focuses on the current liabilities and current assets held by a particular firm. The current assets, as well as liabilities, will contain the short term liabilities and assets. The assets are used by the business to ensure they can meet their current obligations (within the current accounting year). Working capital is obtained by subtracting the current liabilities from the current assets (AlShattarat, Nobanee, Haddad & Al Hajjar, 2017). It would be misleading to use working capital in discussing cash flow without qualification. Cash flow only takes into account cash and its equivalents while working capital takes into account current assets and liabilities. Question 2 A capital intensive business is one that requires hug ...
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