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

In analysing a company's cash flow statement, which pattern most strongly suggests a mature, financially healthy firm?

The healthy mature pattern is positive operating, negative investing and negative financing cash flows. Core operations generate cash, which funds capital expenditure and then repays lenders or pays shareholders, so the firm is self-financing rather than relying on asset sales or fresh borrowing.

  1. APositive operating, negative investing and negative financing cash flowsCorrect
  2. BNegative operating, positive investing and positive financing cash flows
  3. CPositive operating, positive investing and positive financing cash flows
  4. DNegative operating, negative investing and positive financing cash flows

Explanation

A mature healthy firm generates cash from operations, reinvests in assets (negative investing) and repays debt or pays dividends (negative financing). The other patterns show reliance on asset sales or external funds to cover operating shortfalls.

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