All of the Following Are Limitations of the Statement of Cash

question 18

Multiple Choice

All of the following are limitations of the statement of cash flows, except:

• A) financial ratios based on cash flow data are better at predicting financial distress for companies than other ratios that rely solely on accrual accounting balances.
• B) it provides past cash flow data, which may not be a good predictor of future cash flows.
• C) the direct method of determining cash flows from operating activities is more costly to apply than the indirect method.
• D) non-cash transactions and events while relevant to the financial affairs of the entity are excluded from the statement of cash flows.

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Definitions:

Maturity Value

The amount of money that an investment will grow to at the end of its investment period.

Compounded Monthly

Interest on an investment or loan calculated each month and added to the balance, so that subsequent interest calculations include interest on the previous interest.

Receivable Contract

An agreement where one party has the right to receive a payment or series of payments from another party.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.