Reference no: EM132499252

Cathy is preparing for a meeting with her banker. Her business is ?nishing its fourth year of operations. In the ?rst year, it had negative cash flows from operations. In the second and third years, cash ?ows from operations were positive. However, inventory costs rose significantly in year 4, and cash ?ows from operations will probably be down 25%. Cathy wants to secure a line of credit from her banker as a ?nancing buffer. From experience, she knows the banker will scrutinize operating cash ?ows for years 1 through 4 and will want a projected number for year 5. Cathy knows that a steady progression upward in operating cash ?ows for years 1 through 4 will help her case. She decides to use her discretion as owner and considers several business actions that will turn her operating cash ?ow in year 4 from a decrease to an increase.

Required

Question 1: Identify two business actions Cathy might take to improve cash flows from operations.

Question 2: Comment on the ethics and possible consequences of Cathy's decision to pursue these actions