Question

Why might cash flow be heavily scrutinized by potential investors or creditors?

A) To assess the company's profitability.
B) To evaluate the company's liquidity and ability to meet its financial obligations.
C) To determine the company's market share and competitive position.
D) To gauge the company's long-term growth potential.

Answer 1

Cash flow is heavily scrutinized by potential investors or creditors to evaluate a company's liquidity and ability to meet its financial obligations. Correct option is B)

Step-by-step explanation:

Potential investors or creditors heavily scrutinize cash flow to evaluate a company's liquidity and ability to meet its financial obligations. Cash flow provides valuable insights into a company's financial health by showing how effectively it can generate and manage its cash resources. For example, if a company has positive cash flow, it indicates that it has enough cash on hand to cover its expenses and debt payments.