Analyzing the statement of cash flows may help analysts determine the financial health of a company. Which of the following signs below is NOT an indicator of a financially healthy company?
A)The company's operations are a major use (not a source)of cash.
B)The company's operations are a major source (not a use)of cash.
C)The company's financing activities are not dominated by borrowing.
D)The company's investing activities include more purchases than sales of long-term assets.

Question

Quizplus · Accepted Answer

If a company's operations are a major use of cash, it may indicate that the company is not generating enough revenue to cover its expenses and is relying on outside financing. This is not a sign of financial health. Therefore, option A is not an indicator of a financially healthy company. Options B, C, and D are all positive indicators of financial health, as they suggest that the company is generating cash from its operations and not overly reliant on borrowing or selling off assets.

Analyzing the Statement of Cash Flows May Help Analysts Determine