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

Operating activities capture cash inflows and outflows directly related to the core business, such as receipts from customers and payments to suppliers.

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

Under the indirect method: $500,000 + $80,000 (add back non-cash depreciation) − $60,000 (increase in AR uses cash) = $520,000.

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

When net income is positive but operating cash flow is consistently negative, it often signals aggressive accrual accounting or deteriorating receivables collection.

Question 4

Free cash flow (FCF) is best defined as:

Accepted Answer

Operating cash flow minus capital expenditures

Answer

FCF = Operating Cash Flow − Capital Expenditures, representing cash available after maintaining and expanding the asset base.

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

Depreciation and amortization are non-cash charges that reduce net income but do not involve an actual cash outflow, so they are added back.

CCA - Certified Credit Analyst Practice Test

CCA - Certified Credit Analyst Practice Test

CCA Cash Flow Analysis