Select all that is/are true about the cash flow of a firm A . in measuring...

Select all that is/are true about the cash flow of a firm

A . in measuring free cash flows we are more interested in considering cash flows an accounting perspective rather than the perspective of the firm;s shareholders and investors.

B. Net cash flow does not include after tax interest expense

C.While an income statement measures a company's profit,profits are not the same as cash flows;profits are calculated on a cash basis rather than an accruals basis.

D.A firm which invested more cash in assets and working capital than operations,will have a positive operating cash flow and a negative cash flow from assets.

E. Free cash flow from an operating perspective must equal free cash flow from a financing perspective

F.If dividends paid is greater than net equity sold for the year,then the cash flow to stockholders is negative.

G.FCF may be defined as net operating profit after taxes (NOPAT) minus the amount of net investment in operating working capital and fixed assets necessary to sustain the business.

Solutions

Expert Solution

Points D, E, G are true.
Point F is true based on an interpretation of the words used. It is that the words used are "cash flow TO stockholders", which I take as cash flows from the firm's perspective, but only looking at transactions between stockholders. If it is to be interpreted from the perspective of the stockholders (as in they are preparing their individual cash flows), then it is false, but chances are slim that we are expected to take such an interpretation.

Regarding point A: It is false because free cash flow means the cash available to distribute to the creditors and investors.

Regarding point B: Net cash flow considers all inflows and outflows of cash to or from the business, including payments as interest, taxes, etc.

Regarding point C: Profits are not the same as cash flows; profits are calculated on an accruals basis rather than cash basis.

Hope this helps. Consider leaving a thumbs up - that will be helpful. Feel free to ask for clarifications.

jeff jeffy answered 2 months ago

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