Question

Question A

explain how a company can report a positive net income and yet still have a negatuve net operating cash flow?

Question B

what is the most important reason for an organization to use enterprise risk management?

View your discussion rubric. Each week, you will be asked to respond to t prompts in the discussion forum. Your initial p be a minimum of 300 words in length, and is Sunday. By Tuesday, you should respond to t posts from your peers. Question A Explain how a company can report a positive n and yet still have a negative net operating cash Question B What is the most important reason for an organi use enterprise risk management? View your discussion rubric. Each week, you will be asked to respond to the pr prompts in the discussion forum. Your initial posts be a minimum of 300 words in length, and is due a Sunday. By Tuesday, you should respond to two ac posts from your peers.

Answer 1

Answer A. Net income is the excess of revenues over expenses for a given period. It compares revenue (cash and non-cash) earned during the concerned period and expenses incurred (cash and non-cash) during the same period. The result is net profit or net loss. Operating cash flows on the other hand indicate the cash flows from operating activities. It is basically calculated as follows:

Net income

Add: Non-cash expenses such as depreciation, provision for bad debts

Less: Non-cash revenues such as gain on sale of facility

Add: Decrease in current assets

Less: Increase in current assets

Add: Increase in current liabilities

Less: Decrease in current liabililities

= Cash flows from operations

The above adjustment is done to convert income statement from accrual basis to cash basis by adjusting the changes in working capital to arrive at cash flows from operations. So, even if net income is a positive number, the cash flows from operations may be negative if there is a huge increase in current assets or decrease in current liabilities. For e.g., if there is huge increase in accounts receivable, it means less cash available but at the same time it will reflect in revenues earned during the period. The cash flows will be less since the sales is in the form of accounts receivable. Similarly, if there is decrease in current liabilities such as trade payables, the cash flows from operating activities reduce while there is no impact on net income, it affects the current liabilities. Further, in cases of non-operating income such as gain on sale of asset, such non-operating income is recorded on revenues side of income statement and increase net income, but they do not increase cash flows since there is no cash inflow of gain.

Answer B. Enterprise risk management is the process by which an organization recognizes, measures and establishes a response strategy to manage possible risks it may face which may adversely affect it in the achievement of its objectives. ERM is the process of planning, organizing, leading and controlling the activities such that the effect of various risks on the Company’s profitability and performance are minimized. Management must select risk response strategy for each category of risk such as avoidance, risk containment, risk-sharing or transferring, etc. The most important reason for organizations to implement ERM is to have a mechanism in place to face/manage any unknown risks that may arise so that the organization does not fail terribly in the face of such risks. The purpose of ERM is to ensure that the organization can still steadily progress towards growth even if risk arises by having risk responses in place.