What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing?
A) The firm has low depreciation expense.
B) The firm did not pay any dividends.
C) The firm sold more equipment than it purchased.
D) The firm has a low interest rate on its debt.

Question

Quizplus · Accepted Answer

If a firm has negative cash flows from both operations and financing, but still shows an increase in cash balances, it is likely that the firm sold more equipment than it purchased. Selling equipment provides an inflow of cash, which can increase the cash balance even if the firm is experiencing negative cash flows. The other choices are less likely to result in an increase in cash balances in this scenario.

What Is the Most Likely Conclusion for a Firm Whose