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CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis

In a data-analytics review of a company's cash flow statement, an analyst finds that operating cash flow is negative, investing cash flow is negative and financing cash flow is strongly positive. Which interpretation is most consistent with this pattern?

The pattern indicates a firm funding operating cash drain and capital expenditure by raising external capital. Negative operating and investing flows are covered by positive financing inflows from debt or equity. A mature firm returning cash, or one liquidating assets, would show positive operating or investing flows and negative financing.

  1. AA mature firm returning cash to shareholders
  2. BA firm funding losses and expansion by raising external capitalCorrect
  3. CA firm liquidating assets to repay debt
  4. DA firm earning surplus cash and buying back shares

Explanation

Negative operating flow means the core business consumes cash. Negative investing flow means capital is being spent on assets or investments. Positive financing flow shows these outflows are funded by borrowing or issuing shares. The other options would require positive operating or investing flows or negative financing flow.

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