Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?
A) The company had a sharp increase in its depreciation and amortization expenses.
B) The company had a sharp increase in its inventories.
C) The company had a sharp increase in its accrued liabilities.
D) The company sold a new issue of common stock.
E) The company made a large capital investment early in the year.

Question

Quizplus · Accepted Answer

The increase in cash despite negative net cash flow from operations and negative free cash flow can be explained by external financing activities, such as issuing new stock (D). Selling new stock increases cash without affecting operational cash flow or free cash flow calculations.

Danielle's Sushi Shop Last Year Had (1) a Negative Net