CFA Practice Question

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CFA Practice Question

Which financial statement shows whether a company met its liquidity goal?

A. Income statement
B. Balance sheet
C. Statement of cash flows
Correct Answer: C

The statement of cash flows shows whether a company has met its liquidity goal, which is the goal of having enough cash on hand to pay debts when they are due. This statement shows how a company's operating, financing, and investing activities have affected cash flow during a period of time.

User Contributed Comments 3

User Comment
meghanchloe why not also the balance sheet for from the balance sheet you can derive the solvency and liquidity ratio?
apiccion The key-word here is 'met' (past tense). The company could have failed to meet it's liquidity goals, but still be liquid because it raised cash through a debt or equity issue, alternatively it could be selling off fixed-capital to feed liabilities.

Inspecting the statement of cashflows one could determine that the company's operating cashflow was not sufficient to meet current liabilities. Therefore, the company failed to have *met* its liquidity goals. (Again, emphasis on past tense)
cong C is better than A as the cash flow statement shows more directly whether the company is meeting its liquidity goals
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