Question

One of the reasons why cash flow analysis is popular is because ________.

a) cash flows are more subjective than net income
b) cash flows are hard to understand
c) it is easy to manipulate, or spin the cash flows
d) it is difficult to manipulate, or spin the cash flows
e) none of these

Answer 1

D

Step-by-step explanation:

Cash flow is the flow of cash and cash equivalent in and and out of a business.

there are three types of cash flows:

1. Investing cash flow - It involves the use of long term cash. it is the cash flow generated from the purchase and sale of fixed asset e.g. Sale of plant assets.

2. operating cash flow - it shows the net amount of cash generated from a company's normal business operation

3. financing cash flow - it shows the net amount of funding a company receives over a given period e.g. issuance of common stock

Reasons why cash flow analysis is popular

1. Cash flows are less subject to manipulation when compared with net income
2. Cash flow in often positive when net income is negative or zero