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Basic Question 2 of 7
The president of the company you plan to work for needs some advice. She wants to know how it is possible for the company to make money (net income) during the year and yet have the cash balance decline. After reviewing the statement of cash flows, which of the following would most likely explain this situation?
B. Inventory levels decreased significantly from the beginning to the end of the year.
C. There were a large number of December expenses incurred, which have not yet been paid.
D. The company purchased a significant amount of plant assets during the year.
A. The company incurred a significant amount of debt during the year.
B. Inventory levels decreased significantly from the beginning to the end of the year.
C. There were a large number of December expenses incurred, which have not yet been paid.
D. The company purchased a significant amount of plant assets during the year.
User Contributed Comments 3
| User | Comment |
|---|---|
| Khadria | C would be correct if there is a increase in Cash Flow but the income has reduced. |
| lexology | Beg to differ. The key is: having net income and having cash balance decline (DURING THE YEAR). hence, the only way is for the company to buy assets over the year span. |
| wundac | you mean having net income increase and cash balance decline |
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Learning Outcome Statements
calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 5.