Question

Suppose you noticed a cash deficit in financing activities. What would cause a cash deficit in this section? Is it a good or bad thing?

1) Increase in long-term debt
2) Decrease in short-term investments
3) Decrease in cash from issuing stock
4) All of the above

Answer 1

A cash deficit in financing activities could be attributed to a decrease in short-term investments or a decrease in cash from issuing stock, but an increase in long-term debt typically signifies an inflow, not a deficit.

Step-by-step explanation:

If you notice a cash deficit in financing activities, it could be caused by various factors. For instance, an increase in long-term debt would actually result in an inflow of cash and would not be the cause of a cash deficit in financing activities. On the other hand, a decrease in short-term investments and a decrease in cash from issuing stock can both contribute to a cash deficit in this area, as they represent a reduction in cash inflows or an increase in cash outflows. However, to accurately determine if it is a good or a bad thing, one would need to understand the context in which these decreases are occurring and the overall financial strategy of the company.