CFA Practice Question

CFA Practice Question

The statement of cash flows provides us with important clues on all of the following except:
A. Projected changes for the following year in current liability accounts.
B. Ability to meet debt service requirements.
C. Financial practices of management.
Explanation: The statement of cash flows is very informative and can tell you a lot about a company. However, it does not tell you the direction the company is heading as far as its near term liquidity. It can not be inferred that because a company has a lot of cash flow that its payable balances will decrease in the following year. There could be many reasons for holding excess cash including business seasonality and potential acquisitions.

User Contributed Comments 4

User Comment
dimanyc I thought B is calculated thru the use of the Interest Coverage ratio which employes EBIT, an Income Statement item. That's why I chose B.
gerry but you need cash to pay your debt! that's why B is not the correct choice.
cong the reason A is correct is because anything to do with future projection should be in MD&A.
Ifi2703 Remember that none of the financial reports is forward-looking - they all tell you what's happened in the past. So, A is wrong as it will hardly tell you anything about what will happen in the future.

Cong is right, best bet for that might be the MD&A.
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