Company cashflows from operations suggest that the company

Company one appears to be a company that is just
beginning its cycle which is evident based on its rapid growth and its
characteristic of short falls in operations and purchases of fixed assets
financed by long-term debt or new owner investment. Company two seems like a
company who has reached the end of its cycle due to the characteristic of
having negative operating cash flows and distributing cash to shareholders and
for repaying debts. Company 2 is also selling off long-term assets and appears
to be downsizing because of a reduction in owner’s equity or liabilities. The
poor cashflows from operations suggest that the company will not be in play
much longer. Company three is expanding but at a slower pace. Operating
activities are not generating enough cashflow to satisfy the company’s
expansion. Therefore, the progression of the company must be financed in-part
by issuing stocks or debt. This is a normal characteristic of many growing
companies, but this patter also suggest that this is a company approaching its
stage a maturity.

Rating these three companies by risk, company one would
be considered a moderate risk. It is a new company with much potential but also
has more room from error. Company two would be a high risk as it seems to be on
it’s way out of business and will be unable to generate returns. Company three
would be a lower risk to investment as it is an older more mature company which
already has a foot hold in its industry, but will soon reach the state a
maturity of where gains will not be as generous.

In terms of safety, company three would be the safest
investment but in return gains would be limited. Company one offers there
greatest opportunity of the three companies. Even though the operating
cashflows of company one are not sufficient enough to support its expansion, it
is in the beginning stages of the business cycle therefore, has much room form
growth. Investors see this and believe that the future inflows of operations
will be great enough to provide profit once the company becomes more
established.