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

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 cash from its core business activities and may be relying on other sources of cash such as borrowing or selling assets. Therefore, choice B is not an indicator of a financially healthy company. The other choices (A, C, and D) are all indicators of a financially healthy company because they suggest that the company is generating cash from operations, investing in long-term assets, and not relying heavily on borrowing for financing activities.

Analyzing the Statement of Cash Flows May Help Analysts Determine