CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
A mature manufacturer has steady positive operating cash flow, investing cash outflows approximately equal to depreciation, and financing outflows from dividends and debt repayment. An analyst would most likely conclude that the company:
The company is most likely generating enough internal cash to maintain its assets and pay capital providers. Operating cash flow covers capital spending near depreciation, and financing flows are outflows to shareholders and lenders, not inflows from borrowing or new equity.
- Ais funding operations by borrowing heavily
- Bis generating internal cash to maintain assets and reward capital providersCorrect
- Cis in a growth phase relying on external financing
Explanation
Positive operating cash flow covering capex near depreciation and financing outflows indicates internal funding of maintenance and returns to capital providers. Heavy borrowing or growth reliance on external financing would show financing inflows.
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