Cash Flow Statements - Finance

What is a cash flow statement?

• A plan for a company's future financial decisions

• A record of a company's yearly profits

• A financial statement showing movements of cash inflows and outflows over a period

• A document listing a company's shareholders

Answer explanation

A cash flow statement is a financial statement showing movements of cash inflows and outflows over a period, making it the correct choice.

What can a cash flow statement show about a firm?

• The number of products sold in a year

• The firm's stock price at the end of the financial year

• The total number of employees in the firm

• The firm's ability to generate a favorable cash flow

Answer explanation

The cash flow statement shows the firm's ability to generate a favorable cash flow, indicating its financial health and ability to meet its obligations.

Which of the following is NOT a category in a cash flow statement?

• Investing activities

• Marketing activities

• Operating activities

• Financing activities

Answer explanation

The correct choice is 'Marketing activities' because it is not a category in a cash flow statement, while the other options are valid categories.

What do operating activities include?

• Borrowing from financial institutions

• Purchase of non-current assets

• Payments to shareholders

• Income from sales and dividends received

Answer explanation

Operating activities include income from sales and dividends received, as they are related to the primary business operations of a company.

What are investing activities related to?

• Payments for marketing and advertising

• Daily operational expenses

• Issue of shares or capital contributions

• Purchase and sale of non-current assets and investments

Answer explanation

Investing activities are related to the purchase and sale of non-current assets and investments, making this the correct choice.

What do financing activities involve?

• Cash flows from investing in stocks

• Income from main business activities

• Cash inflows and outflows relating to borrowing activities

• Payments to suppliers and employees

Answer explanation

Financing activities involve cash inflows and outflows relating to borrowing activities, such as obtaining loans or issuing bonds.

How does depreciation expense affect a cash flow statement?

• It increases operating cash flow

• It decreases operating cash flow

• It is not included in the cash flow statement

• It decreases investing cash flow

Answer explanation

Depreciation expense is a non-cash expense, so it is added back to net income to calculate operating cash flow, therefore it increases operating cash flow.

Which of the following would be classified under financing activities?

• Payment of dividends to shareholders

• Acquisition of a subsidiary company

• Receipts from the sale of goods and services

• Payments for raw materials

Answer explanation

The payment of dividends to shareholders is classified under financing activities because it involves distributing profits to the owners of the company.

What is the primary purpose of the cash flow statement?

• To show the company's revenue and expenses over a period

• To display the company's financial position at a point in time

• To provide a summary of the company's operating, investing, and financing activities

• To detail the company's future financial plans

Answer explanation

The primary purpose of the cash flow statement is to provide a summary of the company's operating, investing, and financing activities.

Which activity would include the repayment of a long-term loan?

• Operating activities

• Investing activities

• Financing activities

• Marketing activities

Answer explanation

Repayment of a long-term loan falls under financing activities, which involve obtaining and repaying capital to fund the business.