Cash Flow Management Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Cash Flow Management flashcards as text
Which section of the cash flow statement includes collections from customers and payments to suppliers?
Answer: Operating activities
Operating activities include cash flows directly related to a company's core business operations, such as collections from customers and payments to suppliers.
Under the indirect method of preparing the cash flow statement, net income is adjusted for what?
Answer: Changes in working capital and non-cash items
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.
Which of the following is classified as an investing activity in the cash flow statement?
Answer: Purchase of equipment
Purchases and sales of long-term assets such as property, plant, equipment, and investments are classified as investing activities.
What does free cash flow (FCF) represent?
Answer: Cash from operations minus capital expenditures
Free cash flow is calculated as operating cash flow minus capital expenditures, representing cash available after maintaining and expanding the asset base.
A company with positive net income but negative operating cash flow most likely has:
Answer: Significant working capital buildup (e.g., receivables or inventory growth)
When working capital accounts like receivables or inventory grow faster than earnings, operating cash flow can turn negative even with positive net income.
What is the cash conversion cycle (CCC)?
Answer: DIO + DSO − DPO, measuring how long cash is tied up in operations
The cash conversion cycle (DIO + DSO − DPO) measures how many days it takes to convert inventory investments into cash collected from customers.