Economics · Financial Statement Analysis
A Bank Credit Manager evaluates a large corporate group and notices that the Consolidated Cash Flow Statement shows a high net cash inflow from operating activities, but the aging schedule of trade receivables shows that 40% of the receivables are outstanding for more than two years. Additionally, the non-controlling interest (NCI) in one subsidiary is negative. Which of the following summary statements best describes the risk profile of this company?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The company is in excellent financial health because the cash flow is positive and consolidation has been done correctly.
- 2The company exhibits a high risk of inflated operating cash flow, potentially due to aggressive collection of old debts or sale of receivables, while the negative NCI and old aging suggest deep operational issues in subsidiaries.✓
- 3Negative NCI is a sign of a very successful subsidiary that has distributed all its capital back to the minority shareholders.
- 4The aging of receivables is a minor bookkeeping detail and should be ignored if the current ratio is above 1.33:1.
Correct answer
The company exhibits a high risk of inflated operating cash flow, potentially due to aggressive collection of old debts or sale of receivables, while the negative NCI and old aging suggest deep operational issues in subsidiaries.
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