CCA Cash Flow Analysis

Question 1

Which section of the cash flow statement reflects cash generated from a company's primary business operations?

Accepted Answer

Operating activities

Answer

Investing activities

Answer

Financing activities

Answer

Supplemental disclosures

Question 2

A company reports net income of $500,000, depreciation of $80,000, and an increase in accounts receivable of $60,000. What is the approximate cash flow from operations using the indirect method?

Accepted Answer

$520,000

Answer

$440,000

Answer

$580,000

Answer

$640,000

Question 3

What does a persistently negative operating cash flow combined with positive net income most likely indicate to a credit analyst?

Accepted Answer

Aggressive revenue recognition or collection problems

Answer

Strong long-term investment strategy

Answer

Robust capital expenditure program

Answer

Conservative accounting policies

Question 4

Free cash flow (FCF) is best defined as:

Accepted Answer

Operating cash flow minus capital expenditures

Answer

Net income minus dividends paid

Answer

EBITDA minus interest expense

Answer

Cash from financing minus debt repayments

Question 5

Which of the following is a non-cash item that is added back to net income when preparing the operating section under the indirect method?

Accepted Answer

Depreciation and amortization

Answer

Increase in inventory

Answer

Gain on sale of equipment

Answer

Decrease in accounts payable

Question 6

A decline in accounts payable would appear on the indirect-method cash flow statement as:

Accepted Answer

A subtraction from net income

Answer

An addition to net income

Answer

A financing outflow

Answer

An investing inflow

Question 7

Which cash flow metric is most commonly used by credit analysts to measure a borrower's ability to service debt?

Accepted Answer

Debt Service Coverage Ratio (DSCR)

Answer

Gross profit margin

Answer

Current ratio

Answer

Price-to-earnings ratio