Cash Flow Analysis Flashcards
7 cards from real CCA 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 Analysis flashcards as text
When analyzing a borrower's cash flow statement, an increase in inventory is treated as:
Answer: A use of cash in operating activities
Increases in inventory represent cash spent to build stock, reducing operating cash flow under the indirect method.
The direct method of presenting operating cash flows differs from the indirect method primarily because the direct method:
Answer: Reports gross cash receipts and payments from operations
The direct method lists actual cash received from customers and cash paid to suppliers, whereas the indirect method reconciles net income to operating cash flow.
A company with stable profitability but rapidly increasing cash from financing activities warrants scrutiny because it may indicate:
Answer: Excessive reliance on external debt or equity to fund shortfalls
Heavy financing inflows suggest the company cannot self-fund operations, raising concerns about long-term debt sustainability.
Which ratio uses cash flow from operations as the numerator to assess short-term liquidity?
Answer: Operating cash flow ratio
The operating cash flow ratio (Operating CFO / Current Liabilities) measures how well current liabilities can be covered by cash generated from operations.
In project finance credit analysis, which cash flow measure is typically used to evaluate a project's ability to repay debt?
Answer: Project free cash flow after debt service
Lenders evaluate project free cash flow after debt service to confirm sufficient residual cash remains following all principal and interest payments.
A company's capital expenditure exceeds its depreciation consistently over several years. From a credit perspective, this most likely signals:
Answer: Growth investment requiring monitoring of free cash flow
Capex exceeding depreciation indicates net asset investment and growth, which is positive but may reduce free cash flow and increase borrowing needs.
Which of the following adjustments is made to EBITDA to arrive at a more conservative 'adjusted cash flow' measure used in credit analysis?
Answer: Subtracting maintenance capital expenditures
Maintenance capex must be deducted from EBITDA because it represents a recurring cash cost needed to sustain earning capacity, not a discretionary expense.