CFM Cash Flow Management

Question 1

Which section of the cash flow statement includes collections from customers and payments to suppliers?

Accepted Answer

Operating activities

Answer

Operating activities include cash flows directly related to a company's core business operations, such as collections from customers and payments to suppliers.

Question 2

Under the indirect method of preparing the cash flow statement, net income is adjusted for what?

Accepted Answer

Changes in working capital and non-cash items

Answer

The indirect method starts with net income and adjusts for non-cash items (like depreciation) and changes in working capital to arrive at operating cash flow.

Question 3

Which of the following is classified as an investing activity in the cash flow statement?

Accepted Answer

Purchase of equipment

Answer

Purchases and sales of long-term assets such as property, plant, equipment, and investments are classified as investing activities.

Question 4

What does free cash flow (FCF) represent?

Accepted Answer

Cash from operations minus capital expenditures

Answer

Free cash flow is calculated as operating cash flow minus capital expenditures, representing cash available after maintaining and expanding the asset base.

Question 5

A company with positive net income but negative operating cash flow most likely has:

Accepted Answer

Significant working capital buildup (e.g., receivables or inventory growth)

Answer

When working capital accounts like receivables or inventory grow faster than earnings, operating cash flow can turn negative even with positive net income.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM Cash Flow Management