Dutch Glass Company is in the business of manufacturing glass for residential home construction. In recent years, the company has suffered working capital problems caused by plant asset acquisitions and the increase of receivables due to the economic downturn and slower-paying contractors. The president, John Dutch, has tried to increase working capital by borrowing money; however, because of their deteriorating financial condition, they have been unsuccessful. The loan officer at their current bank has explained that no additional loans will be approved until they demonstrate the ability to generate positive cash flows.
John considers the problem and suggests to you that to generate positive cash flows, the company could sell some of its accounts receivable and liquidate much of its raw material. These actions would be detrimental to net income but would generate a positive cash flow.
What are the ethical issues related to John's ideas?
As the CFO for Dutch, how would you respond to John?