Businesses Earn Returns for Security Holders by Purchasing and Operating

question 64

True/False

Businesses earn returns for security holders by purchasing and operating physical assets. The relevant risk of any physical asset must be measured in terms of its effect on the risk of the firm's securities.

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Definitions:

Indirect Method

One of two methods of preparing the net cash flow from the operating activities section of the statement of cash flows. Involves converting the accrual basis net income figure from the income statement to the net cash flows from operating activities.

Operating Activities

Those activities most closely related to conducting the business for which the enterprise was established. Activities such as selling merchandise and services to customers and paying salaries and other expenses needed to continue earning the operating revenue are classified as operating activities.

Net Cash Flow

The difference between a company's cash inflows and outflows in a given period, indicating its ability to generate cash.

Managing Activities

The actions taken by an organization to plan, organize, direct, and control its operational, financial, and administrative tasks.