In: Accounting
A new, fast growing company may typically have which of the
following patterns of cash flows?
A. Negative cash flows from operations, cash outflows from
financing and cash inflows from investing
B. Negative cash flows from operations, cash inflows from financing
and cash outflows from investing
C. Positive cash flows from operations, cash outflows from
financing and cash inflows from investing
D. Positive cash flows from operations, cash inflows from financing
and cash outflows from investing
The information in the statement of cash flows should help
investors and creditors evaluate:
A. the investing and financing transactions during the period
B. the company's ability to generate past cash flows
C. the reasons for the difference between net liabilities and net
cash provided or used by operating activities
D. the company's ability to receive dividends and meet shareholder
obligations
1
Ans - Positive cash flows from operations, cash inflow
from financing and cash outflows from investing (Option
D)
Positive cash flow from operating activities shows that company is
able to meet its short term obligations easily. Negative cash flow
from investing activities shows that company is making investments
on long term assets needed for running the business. Positive cash
flow from financing activities shows that company is able to raise
necessary funds from issuance of equity and debt in order to run
the business. All these shows that company is growing.
2
Ans - The investing and financing transactions during the period (Option A)
-Investors and creditors are concerned with future cash flows
and not past (Option B is incorrect)
-they are concerned with difference between net income and net cash
provided or used by operating activities instead of net liabilities
(Option C is incorrect)
-Investors are concerned with company's ability to pay dividends
not receive (Option D is incorrect)
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