CFA Practice Question

CFA Practice Question

The cash flow statement provides more objective information about all of the following, except
A. management decisions regarding financial policy, dividend policy, and investment for growth.
B. the amount a firm can be leveraged.
C. trends in cash flow components.
Explanation: In this case balance sheet data must be used to determine the answer.

User Contributed Comments 6

User Comment
RyanFraser The amount a firm can be leveraged may also be hooked into its ability to have sufficient cashflow to provide coverage to its debts. In this case, (B) also provides objective information
jayjunk I agree with Ryan. The amount a firm can be leveraged certainly is influenced by the current cash flow (especially OCF). However, A and C can be more directly drawn from the statement of cash flows thus B is correct.
smillis Isn't the CF Stmnt a point in time? I didn't think trends could be determined (C).
xiong you can compare current period's CF statement with previous periods' and get the trend. You can not get leverage info from cash flow statement(s).
chandsingh we use the cf to decide how much additional leverage may be provided i.e. can the business afford it. I think the question is worded vaguely if they are talking about leverage info.
sunday128 The fact the CFO can indicate how much additional interest costs it can bear, it should be able to gauge how much more leverage the firm can have, no?
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