Question

How does a cash flow from financing differ from the cash flow from investments?

• A : Cash flows from financing come from private companies whereas cash flows from investing come from government sources.

• B : Cash flows from financing come from cash received or paid to creditors whereas cash flows from investing are from buying and selling assets.

• C : Cash flows come financing from banks and investment firms whereas cash flows from investing cash flows come from other businesses.

• D : Cash flows from financing come from public sources whereas t cash flows from investing come from private sources.

Answer 1

To answer this question we first need to know about some basics of Cashflow statements:

A cashflow statement consists of three parts, (i). Cashflow from Operating activities, (ii). Cashflow from Financing activities, (iii). Cashflow from Investing activities.

Cashflow from Financing activities: It is that part of company's cashflow statement which which gives information about a company's net flow of cash that are used to fund the company.

It involves transactions related to issue of Equity, Debt, dividends, repurchase of stocks, cash received and paid to creditors etc,.

Cashflow from Investing activities: It is that part of Cashflow statement of the company which gives information about a company's cashflow arising from purchase and sale of long-term assets that will deliver value in future.

Therefore, "Cash flows from financing come from cash received or paid to creditors whereas cash flows from investing are from buying and selling assets".

Hence, Option(b) is correct.