#1
Which of the following is a component of cash flow analysis?
Statement of cash flows
ExplanationIt details the inflows and outflows of cash and cash equivalents.
#2
Which financial activity does cash flow analysis primarily focus on?
Operating activities
ExplanationIt involves day-to-day business transactions affecting cash flow.
#3
How does depreciation affect cash flow?
No effect on cash flow
ExplanationDepreciation is a non-cash expense and doesn't affect cash flow.
#4
Which cash flow category would dividends paid fall under?
Financing activities
ExplanationIt involves transactions related to the company's capital structure.
#5
What does the term 'free cash flow' represent?
Cash available after paying off all debts
ExplanationIt's the cash remaining after all obligations, including debt payments, are satisfied.
#6
Which financial ratio is commonly used to assess a company's ability to meet short-term obligations?
Current ratio
ExplanationIt measures a company's liquidity by comparing current assets to current liabilities.
#7
What does the term 'cash equivalents' refer to in cash flow analysis?
Highly liquid investments with a short-term maturity
ExplanationThey are short-term, highly liquid investments easily convertible to cash.
#8
What does a positive cash flow from operations indicate?
The company is profitable
ExplanationIt signifies that core business operations generate more cash than they consume.
#9
How does a decrease in accounts receivable affect cash flow?
Increases cash flow from operations
ExplanationIt means less cash is tied up in receivables, resulting in more cash available.
#10
What does a negative cash flow from financing activities indicate?
The company is raising capital
ExplanationIt suggests the company is obtaining funds through debt or equity.
#11
Which method of cash flow analysis focuses on cash receipts and cash payments?
Direct method
ExplanationIt directly records cash transactions without adjustments from accrual accounting.
#12
How does an increase in accounts payable affect cash flow?
Increases cash flow from financing
ExplanationIt means the company is delaying payments, freeing up cash in the short term.