Financial Reporting and Statements Flashcards
6 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Reporting and Statements flashcards as text
The statement of cash flows is divided into which three sections?
Answer: Operating, Investing, and Financing activities
The cash flow statement categorizes all cash movements into operating activities (core business), investing activities (asset purchases/sales), and financing activities (debt/equity transactions).
Depreciation is added back to net income in the operating section of the indirect method cash flow statement because:
Answer: It is a non-cash expense that reduced net income but did not use cash
Under the indirect method, depreciation is added back to net income because it reduced reported earnings without requiring any cash payment.
Which financial metric measures the percentage of net income remaining after all expenses, including taxes and interest, relative to total revenue?
Answer: Net profit margin
Net profit margin (net income ÷ revenue × 100) shows what percentage of each dollar of revenue ultimately becomes profit after all costs.
On the balance sheet, retained earnings represent:
Answer: Cumulative net income kept in the business after dividends
Retained earnings are the accumulated net profits reinvested in the business over time, reduced by any dividends paid to shareholders.
A project manager reviewing a company's financial statements notices accounts receivable has grown significantly faster than revenue. This most likely indicates:
Answer: Customers are taking longer to pay or collection problems exist
When accounts receivable grow faster than revenue, it suggests slower collections, lenient credit terms, or potential bad debt issues.
Which section of the cash flow statement would include the purchase of new project equipment?
Answer: Investing activities
Purchases of property, plant, and equipment are capital expenditures classified as investing activities in the cash flow statement.