Business, 03.06.2021 16:10 miller5452

A merchandising business that sells to other businesses has been in operations for the past five years. Revenues have increase by 20% each year and it been profitable every year. Due to the continued growth in sales each year, the company keeps higher levels of inventory to avoid any lost sales opportunities. The company's suppliers offer credit terms of 1/20, n/ 60 but the company prefers to pay cash when making its purchases. The company also offers it business customers credit terms of 1/10, n/60. Around 75% of its customers pay within the 60 days and the other 25% pay in 90 days. Because the company has been profitable every, it has been paying a generous dividend to its shareholders each year. The company's CEO does not understand why the business is always short on cash yet it is profitable each year. Based on the information the CEO provided about the business, discuss to the possible reasons and solutions the cash flow problems.

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