A company's cash flow may be described as the movement of money in and out of the business. Expenses and revenues are two sides of the same coin for businesses. Selling things on credit with the expectation of receiving payment at a later date may also be a source of revenue for these individuals
Definition of Cash Flow
A company's net cash and cash equivalents coming in and going out is referred to as its cash flow. Inflows and outflows are represented by the amount of money received and the amount of money expended. Free cash flow or long-term free cash flow are the two most important factors in determining a company's potential to produce value for shareholders (FCF). Cash flow created by a company's regular operations after deducting capital expenditures is referred to as FCF (CapEx).
Types of Cash Flow
Operating cash flow (CFO) or cash flows from operations: represents the money flows engaged directly in the production and sale of items from regular activities.
CFI (Cash Flow from Investment) or Investing Cash Flow: The net cash flows used to fund the firm and its capital are shown in the cash flows from financing (CFF), also known as the financing cash flow.
Cash flows from financing (CFF), or financing cash flow: The net cash flows utilized to fund the firm and its capital are shown in this statement.
Analyzing Cash Flows
With the support of other financial documents, analysts and investors may come up with numerous metrics and ratios that can be utilized to make educated judgments and recommendations.
One of the most significant goals of financial reporting is to assess the quantity, timing, and unpredictability of cash flows, as well as where they begin and where they end up. Liquidity, adaptability, and overall financial success are all evaluated using this metric.
Following are some of the multiple choice questions on the Cash Flow with answers that will help the students in developing their knowledge.
Cash Flow MCQ
1. Which one of the following ISN’T a way of cash outflow?
7. Which of the following statements are false?A) Cash Flow Statement is helpful in the formation of policies.B) Cash Flow Statement is useful for external analysisC) Cash Flow Statement is helpful in estimating future cash flow
18. Assume a firm sells goods costing £40,000 for £55,000. It provides the customerwith 70% trade credit (i.e. the customer pays only 30% of the price as a downpayment). The profit earned is __________, and the cash received is _________.