Which of the Following Statements Concerning a Firm's Cash Flows

question 36

Multiple Choice

Which of the following statements concerning a firm's cash flows and profits is false?

• A) Managers must be at least as concerned with cash flows as with profits.
• B) A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.
• C) The cash flows generated in a given time period can differ from the profits reported.
• D) Profits are no assurance that cash flow will be sufficient to maintain solvency.
• E) Due to required cash investments in current assets,fast-growing and profitable companies can literally "grow broke".

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Definitions:

Outstanding Checks

Checks that have been written and recorded in a company's accounting system but have not yet been cashed or cleared by the bank.

Credit Memo

A document issued by a seller to a buyer, reducing the amount that the buyer owes to the seller under previous invoices.

Sarbanes Oxley

A U.S. law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures, influenced by financial scandals.

U.S. Exchanges

Marketplaces in the United States where securities, commodities, derivatives, and other financial instruments are traded.