Chapter Case– Quality Home Health(QHH) has been expanding
rapidly over the past five years. Although paper profits(i.e.,
earnings that are shown on reports but may bot tranlate into actual
cash in the bank) have been stable at about 3.5 percent of
operating revenues, the liquidity of the company has become a
concern. You, the CFO, have noted that days cash on hand has
dropped to 12 and that the current ratio has decreased to 0.4,
while days in accounts receivable has increased to 122 and
inventory turnover has decreased substantially. The CEO would like
you to answer the following questions:

1. Why does cash flow and liquidity become a problem during
company growth?

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2. How can a company have healthy profits but lack funds to pay
basic expenses?

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3. What is the relationship between liquidity and accounts
receivable?   

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4. What could QHH do to improve its liquidity?

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