An entity's net cash flow from operating activities is important for users of the statement of cash flows because it:
A) indicates the entity's ability to generate cash.
B) represents the entity's cash flows from normal business operations.
C) indicates that the business is meeting its current obligations.
D) all of the above options are true.

Question

An entity's net cash flow from operating activities is important for users of the statement of cash flows because it:
A) indicates the entity's ability to generate cash. 
B) represents the entity's cash flows from normal business operations.
C) indicates that the business is meeting its current obligations.
D) all of the above options are true.

Quizplus · Accepted Answer

Net cash flow from operating activities is an essential measure for multiple reasons - 
A) It indicates the entity's ability to generate cash means the cash generated from ongoing business activities represents the lifeblood of any business, and it is crucial to assess how much cash a business is generating or burning in the short run.
B) It represents the entity's cash flows from normal business operations means this cash flow figure reflects how much cash the entity earned or lost from its core business activities that are sustainable over time.
C) It indicates that the business is meeting its current obligations means if the operating cash flow is positive, suggesting the entity generated more cash from operations than it paid out, which can lead to positive working capital and cash reserves, indicating that the business has enough resources to meet its everyday working capital obligations.

An Entity's Net Cash Flow from Operating Activities Is Important