B.9 Cash flow management

Question 1

Which of the following is a measure of cash flow commonly used in cash flow management?

A. Net present value
B. Internal rate of return
C. Operating cash flow
D. Gross profit margin

Answer 1

C. Operating cash flow

Operating cash flow is the cash generated or used in a company’s day-to-day operations, and is a commonly used measure in cash flow management.

B.9 Cash flow management

Question 2

A company that is experiencing negative cash flow means that:

A. The company is generating more cash than it is spending
B. The company is spending more cash than it is generating
C. The company’s cash inflows and outflows are equal
D. The company has no cash reserves left

Answer 2

B. The company is spending more cash than it is generating

Negative cash flow occurs when a company’s cash outflows exceed its cash inflows.
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B.9 Cash flow management**

Question 3

Which of the following is an example of a cash inflow?

A. Purchase of inventory
B. Payment of salaries
C. Sale of goods
D. Payment of rent

Answer 3

C. Sale of goods

A cash inflow is any cash received by a company, such as revenue from the sale of goods or services.

B.9 Cash flow management

Question 4

Which of the following is an example of a cash outflow?

A. Receipt of customer payment
B. Purchase of equipment
C. Revenue from interest earned
D. Payment of dividends

Answer 4

B. Purchase of equipment

A cash outflow is any cash payment made by a company, such as for the purchase of equipment or inventory.

B.9 Cash Flow Mangement

Question 5

Which of the following is a strategy for managing cash flow?

A. Delaying payment to suppliers
B. Increasing inventory levels
C. Reducing accounts receivable
D. All of the above

Answer 5

D. All of the above

Strategies for managing cash flow can include delaying payment to suppliers, increasing inventory levels, and reducing accounts receivable.

B.9 Cash Flow Mangement

Question 6

Which of the following is a cash flow ratio used in cash flow management?

A. Debt-to-equity ratio
B. Current ratio
C. Accounts receivable turnover ratio
D. Cash conversion cycle

Answer 6

D. Cash conversion cycle

The cash conversion cycle is a ratio that measures how long it takes a company to convert its investments in inventory and other resources into cash flow.

B.9 Cash Flow Mangement

Question 7

Which of the following is a strategy for improving cash flow?

A. Reducing the length of the cash conversion cycle
B. Increasing inventory levels
C. Delaying payment to suppliers
D. All of the above

Answer 7

D. All of the above

• Reducing the length of the cash conversion cycle shortens the time it takes for a business to turn its investments (inventory, etc.) into cash flow from sales.
• Increasing inventory levels can be a strategy if it allows a business to meet customer demand and increase sales, but only if it’s balanced to avoid tying up too much cash.
• Delaying payment to suppliers conserves cash in the short term by extending the time before cash outflows occur.

B.9 Cash Flow Mangement

Question 8

Which of the following is an example of a non-cash expense?

A. Interest expense
B. Depreciation expense
C. Salaries and wages expense
D. Cost of goods sold expense

Answer 8

B. Depreciation expense

Depreciation is a non-cash expense that represents the decline in value of an asset over time.

B.9 Cash Flow Mangement

Question 9

Which of the following is a cash flow statement category?

A. Accounts payable
B. Accounts receivable
C. Operating activities
D. Inventory

Answer 9

C. Operating activities

The cash flow statement categorizes cash inflows and outflows into operating activities, investing activities, and financing activities.

B.9 Cash Flow Mangement

Question 10

Rebecca is a financial planner working with a client, Martin, who wants to forecast his cash flow for the upcoming year. Rebecca is considering different methods to make an accurate prediction. She recalls several methods from her training.

Which method(s) could Rebecca use for cash flow forecasting based on her training?

A. Pattern assessment
B. Correlation analysis
C. Situation evaluation
D. All of the above

Answer 10

D. All of the above

All the methods mentioned - pattern assessment (akin to trend analysis), correlation analysis (similar to regression analysis), and situation evaluation (like scenario analysis) - are viable techniques for forecasting cash flow. Thus, Rebecca could potentially use any or all of these methods based on the specifics of Martin’s financial situation.

B.9 Cash Flow Mangement

Question 11

Natalie, a financial planner, is assessing the resilience of her client James’s business operations. She wants to understand how various factors might influence the company’s cash flows over the coming year. Which of the following actions taken by Natalie would be considered a cash flow sensitivity analysis?

A. Evaluating the effect of a 2% increase in loan interest rates on the company’s cash flows
B. Analyzing the impact of a 15% reduction in stored goods on the business’s cash flows
C. Gauging the consequences of a 3% hike in corporate tax rates on the firm’s cash flows
D. All of the above

Answer 11

D. All of the above

Cash flow sensitivity analysis involves estimating how changes in different variables can impact cash flows. All the options (A, B, C) are examples of assessing how changes in interest rates, inventory levels, and tax rates, respectively, can influence cash flows. Hence, the correct answer is D) All of the above.

B.9 Cash Flow Mangement

Question 12

Melissa runs a small boutique. She is planning her financials for the next year and wants to ensure she has a clear understanding of her money movements. Which of the following actions would Melissa take if she is creating a cash flow budget?

A. Forecasting anticipated sales revenue of $250,000 for the next year
B. Estimating expected accounts payable of $50,000 for the next year
C. Predicting expected net income of $80,000 for the next year
D. Projecting expected cash inflows and outflows for the next year

Answer 12

D. Projecting expected cash inflows and outflows for the next year

A cash flow budget involves estimating both the expected cash inflows and outflows over a certain period, which helps in determining the net cash flow. It assists in ensuring sufficient liquidity to meet the obligations as they become due. The other options are specific projections which, although related to cash movements, do not encompass the entirety of what a cash flow budget represents.

B.9 Cash Flow Mangement

Question 13

Jessica operates a beach resort named “Sunny Sands” located in a coastal town. The majority of her revenue comes during the summer months, while her business sees limited guests during the winter. To manage cash flow throughout the year, she’s considering various strategies. Which of the following might Jessica employ to manage cash flow in her seasonal business?

A. Stocking up on beach equipment and amenities during the winter months.
B. Providing special offers to customers who pay for their summer bookings in advance.
C. Postponing payments to her seafood vendors until the peak summer season.
D. All of the above.

Answer 13

D. All of the above.

Each of the strategies can potentially help a seasonal business like “Sunny Sands” manage its cash flow:

A. By purchasing inventory during the off-season, Jessica might get better deals and be prepared for the influx of guests during the peak season.
B. Offering discounts for early payment can incentivize customers to pay upfront, thereby improving cash flow during the off-season.
C. Delaying payment to suppliers might allow the business to maintain more liquidity during lean months, using the revenue from the busy season to settle accounts later. However, it’s crucial that Jessica maintains good relationships with her suppliers and ensures delayed payments are agreed upon and not harmful to the suppliers’ operations

B.9 Cash Flow Mangement

Question 14

Which of the following is a cash flow management tool?

A. Balance sheet
B. Income statement
C. Cash flow statement
D. None of the above

Answer 14

C. Cash flow statement

The cash flow statement is a cash flow management tool that provides information about a company’s cash inflows and outflows.

B.9 Cash Flow Mangement

Question 15

Which of the following is an example of a cash flow financing activity?

A. Sale of common stock
B. Payment of dividends
C. Purchase of equipment
D. All of the above

Answer 15

A. Sale of common stock

Cash flow financing activities include activities that involve the issuance or retirement of debt or equity, such as the sale of common stock or the repayment of a loan. Payment of dividends and purchase of equipment are examples of cash flow operating and investing activities, respectively.

B.9 Cash Flow Mangement

Question 16

ABC Company is considering whether to lease or buy a new piece of equipment. Which of the following statements is true?

A. Leasing will result in lower cash outflows in the short term but higher total costs in the long term.
B. Buying will result in higher cash outflows in the short term but lower total costs in the long term.
C. Leasing and buying will result in the same total costs over the long term.
D. It is impossible to determine which option will result in lower total costs without more information.

Answer 16

B. Buying will result in higher cash outflows in the short term but lower total costs in the long term

Although leasing may result in lower cash outflows in the short term, buying may be less expensive over the long term due to factors such as depreciation and interest expenses.

B.9 Cash Flow Mangement

Question 17

MapleTech Enterprises is deliberating on providing a 5% discount to its customers if they settle their bills within 10 days of invoice issuance. What could be a prospective advantage of implementing this tactic?

A. It will augment MapleTech’s accounts receivable tally.
B. It will diminish MapleTech’s cash outflows.
C. It will bolster MapleTech’s stock quantities.
D. It will cut down MapleTech’s cost of products sold.

Answer 17

B. It will diminish MapleTech’s cash outflows.

By offering an early payment discount, MapleTech encourages its customers to pay their invoices faster. This means MapleTech will receive cash quicker, thereby reducing the time cash is tied up in accounts receivable. As a result, this reduces the company’s cash outflows as they can use this incoming cash for other operational needs or investments without having to rely on external financing or other sources.

B.9 Cash Flow Mangement

Question 18

XYZ Enterprises is facing a liquidity crunch and is pondering on taking out a loan from the local financial institution to meet its operational costs. What could be a possible drawback of this approach?

A. It might amplify the firm’s interest expenditure.
B. It might reduce the firm’s outstanding bills amount.
C. It might elevate the firm’s stock on hand.
D. It might raise the firm’s net earnings.

Answer 18

A. It might amplify the firm’s interest expenditure.

When a company borrows money from a bank or any other financial institution, it typically must pay interest on that borrowed amount. This interest is an additional expense for the company, which is why option A is the correct answer. The other options don’t directly correlate with the act of borrowing money.

B.9 Cash Flow Mangement

Question 19

GHI Company has a large accounts receivable balance and is experiencing difficulty collecting payment from its customers. Which of the following strategies may help improve the company’s cash flow?

A. Increasing inventory levels
B. Offering longer payment terms to customers
C. Implementing a more aggressive collections policy
D. Paying suppliers more quickly

Answer 19

C. Implementing a more aggressive collections policy

A more aggressive collections policy can help improve cash flow by encouraging customers to pay more quickly and reducing the time between the sale and receipt of payment.

B.9 Cash Flow Mangement

Question 20

JKL Company is considering investing in a new project that is expected to generate significant cash inflows over the next several years. Which of the following is a potential disadvantage of this strategy?

A. It may decrease the company’s net income.
B. It may increase the company’s cash outflows in the short term.
C. It may decrease the company’s accounts receivable balance.
D. It may reduce the company’s inventory levels.

Answer 20

B. It may increase the company’s cash outflows in the short term

B.9 Cash Flow Mangement

Question 21

Jeremy is a financial planner helping his client, Lauren, understand her company’s financial health. Lauren, being new to financial metrics, asks Jeremy about various metrics she came across during a recent financial meeting. She is particularly interested in understanding which of the following metrics is commonly used to gauge the cash flow of her business. Which metric should Jeremy explain to Lauren as a measure of cash flow commonly used in cash flow management?

A. Net present value
B. Internal rate of return
C. Operating cash flow
D. Gross profit margin

Answer 21

C. Operating cash flow

Operating cash flow represents the cash generated from a company’s regular operating activities and is a direct measure of how much cash a company produces from its core business operations. While net present value (A) and internal rate of return (B) are investment appraisal techniques used to evaluate the profitability of an investment, and gross profit margin (D) is a measure of a company’s profitability, only operating cash flow (C) specifically measures the cash flow of a business.

B.9 Cash Flow Mangement

Question 22

Sarah, a financial analyst, is reviewing the financial statements of TechFlow Inc., a tech startup. She notes that the company has been experiencing negative cash flow for the past few quarters. Based on this observation, which of the following conclusions can Sarah draw about TechFlow Inc.?

A. TechFlow Inc. is generating more cash than it is spending.
B. TechFlow Inc. is spending more cash than it is generating.
C. TechFlow Inc.’s cash inflows and outflows are equal.
D. TechFlow Inc. has no cash reserves left.

Answer 22

B. TechFlow Inc. is spending more cash than it is generating.

Negative cash flow indicates that a company’s cash outflows (or expenses) exceed its cash inflows (or revenues) over a given period. This means the company is spending more cash than it is bringing in, leading to a reduction in its available cash. This doesn’t necessarily mean the company has no cash reserves left; rather, it’s just an indication of the company’s cash flow dynamics during that period.B.9 Cash flow management.

B.9 Cash Flow Mangement