Which of the following is a negative Cash Throw-Off characteristic?

• A. Reduction current assets.
• B. Increase in current liabilities.
• C. Increase long term liabilities.
• D. Increase in net worth.

Answer: (A)

Cash throw-off is the cash a firm’s assets generate for the owners; a negative cash throw-off happens when actions reduce the cash available, rather than increase it. Reducing current assets directly lowers the liquid resources the firm has on hand, trimming the cash that could be thrown off by operations or left available for distributions. In other words, decreasing current assets drains cash availability and thus produces a negative effect on cash throw-off.

Increasing current liabilities delays cash outflows, which can improve the cash position in the short term and boost cash throw-off. Increasing long-term liabilities brings in cash at the time of financing, also not a negative effect on ongoing cash generation. An increase in net worth (equity) similarly injects cash when raised. These options do not drain current cash in the same way that reducing current assets does, so they’re not negative cash throw-off characteristics.