CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
An analyst is evaluating the cash flow statement of a mature manufacturer. Which of the following patterns most likely indicates a healthy source of cash flows?
Positive operating cash flow that exceeds capital expenditures is the healthiest pattern. It shows the core business generates enough recurring cash to fund investment without depending on asset sales or new borrowing, which are less sustainable sources of cash.
- AOperating cash flow is negative and is funded by asset sales
- BOperating cash flow is positive and exceeds capital expendituresCorrect
- COperating cash flow is funded mainly by new borrowing
Explanation
A mature firm should generate cash from its core operations. Operating cash flow that exceeds capital expenditures shows the business can fund its investment from recurring activity. Asset sales and borrowing are less sustainable sources.
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