#1
Which section of the cash flow statement reports the company's operating activities?
Operating Activities
ExplanationReports cash flows related to day-to-day business operations.
#2
What is the purpose of the cash flow statement in financial reporting?
To disclose the company's cash and cash equivalents
ExplanationProvides insight into liquidity and financial health.
#3
Which financial statement is directly linked to the cash flow statement?
Income Statement
ExplanationProvides key data for cash flow analysis.
#4
What is the purpose of the direct method of presenting cash flows from operating activities?
To directly list cash inflows and outflows
ExplanationProvides clear breakdown of cash movements.
#5
Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance Sheet
ExplanationLists assets, liabilities, and equity.
#6
What does positive free cash flow indicate about a company?
It is generating excess cash
ExplanationCompany generates more cash than it spends.
#7
How is the indirect method of cash flow calculation different from the direct method?
Indirect method starts with net income and adjusts for non-cash items
ExplanationAdjusts net income for non-cash items to calculate cash flow.
#8
Which activity involves cash flows related to acquiring and disposing of long-term assets?
Investing Activities
ExplanationCovers cash flows for buying and selling assets.
#9
Why is the cash flow statement considered a more reliable indicator of a company's financial health than the income statement?
It includes non-cash items that impact profitability
ExplanationProvides a clearer view of actual cash movements.
#10
What is the primary purpose of the cash flow statement's reconciliation of net income to cash from operating activities?
To adjust for non-cash items in the income statement
ExplanationEnsures operating cash flow reflects actual cash.
#11
How does depreciation impact cash flow in the cash flow statement?
It has no impact on cash flow
ExplanationDepreciation is a non-cash expense.
#12
What is the formula for free cash flow?
Operating Cash Flow - Capital Expenditures
ExplanationRepresents cash available after operating and capital expenses.
#13
How do changes in working capital affect cash flow?
Increase in working capital decreases cash flow
ExplanationHigher working capital ties up cash, reducing available funds.
#14
What does a negative free cash flow suggest about a company?
It may struggle to meet its financial obligations
ExplanationCompany may have difficulty covering expenses.
#15
How does the cash flow statement help investors assess a company's risk?
By revealing the company's ability to generate cash
ExplanationShows if company can meet financial commitments.
#16
What is the significance of the term 'cash equivalents' in the cash flow statement?
It refers to highly liquid investments with short maturities
ExplanationRepresents easily convertible investments.
#17
How does the cash flow statement contribute to the analysis of a company's liquidity position?
By assessing the company's ability to meet short-term obligations
ExplanationIndicates if company can pay short-term debts.