High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.

Question

Quizplus · Accepted Answer

This statement is generally true as investors are generally willing to pay more for stocks with stable and consistent cash flows compared to those with higher risk and volatility. Higher cash flows tend to indicate financial stability and profitability of a company, which attracts more investors and drives up its share price. On the other hand, companies with higher risk, such as startups or those in industries with high competition or regulatory uncertainty, may have lower cash flows and may not be as attractive to investors, resulting in a lower share price. However, there may be exceptions to this general trend depending on various factors such as market conditions, industry trends, and company-specific performance.

High Cash Flow Is Generally Associated with a Higher Share