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Cash Flow Management Flashcards

7 cards from real CAT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Cash Flow Management flashcards as text

  1. A business has net income of $40,000, depreciation of $8,000, an increase in receivables of $5,000, and a decrease in payables of $3,000. What is cash from operations using the indirect method?

    Answer: $40,000

    Cash from operations = $40,000 + $8,000 − $5,000 − $3,000 = $40,000.

  2. Which ratio measures how many times a company can cover its short-term liabilities with its most liquid assets, excluding inventory?

    Answer: Quick ratio

    The quick ratio = (Current Assets − Inventory) ÷ Current Liabilities, reflecting the ability to meet obligations without selling inventory.

  3. A company factors $200,000 of invoices at a 3% fee. How much cash does it receive immediately, and what is the cost?

    Answer: $194,000 cash; $6,000 cost

    Cash received = $200,000 × (1 − 3%) = $194,000; the factoring fee of $6,000 is the cost of accelerating cash collection.

  4. What does a cash flow to debt ratio of 0.25 indicate?

    Answer: The company generates $0.25 of operating cash for every $1 of debt

    A cash flow to debt ratio of 0.25 means operating cash flow covers 25 cents of each dollar of total debt, signalling the debt repayment pace.

  5. Which of the following best describes 'window dressing' in cash flow reporting?

    Answer: Timing transactions near period end to make cash flow appear stronger than it really is

    Window dressing involves manipulating the timing of receipts or payments around the reporting date to present a misleadingly favourable cash position.

  6. If a company's days sales outstanding (DSO) rises from 30 to 45 days, what is the cash flow impact?

    Answer: Cash inflow is delayed, reducing available working capital

    A higher DSO means customers take longer to pay, deferring cash receipts and tightening working capital.

  7. A company purchases equipment for $50,000 by paying $20,000 cash and signing a $30,000 note payable. How is the cash flow statement affected?

    Answer: Investing outflow of $20,000; the $30,000 note is a non-cash disclosure

    Only the $20,000 cash paid appears as an investing outflow; the $30,000 note is a non-cash financing transaction disclosed separately.