Question

How can you determine if a firm is self-sustaining by reviewing the firm's cash flow from...

How can you determine if a firm is self-sustaining by reviewing the firm's cash flow from assets?

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Answer #1

In the long term, a firm's cash flows from Assets should be positive because the firm must be able to finance its operations on its own. In short-term, negative cash flows can be financed from borrowings. In long run, if a firm is not able to finance its operations itself, then it may not be able to raise funds from the capital markets. If firm's cash flow is positive then it simply means that it is producting sufficient cash to finance its operations, In long run, firm must have cash flows from Assets higher than its debt obligations so that it can distribute remaing cash flows to shareholders. In long run, the firm's cash flow must be sufficient to finance its operations, meet debt obligations and create new Assets.

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