When Using the Indirect Method to Prepare the Operating Activities

question 83

Multiple Choice

When using the indirect method to prepare the operating activities section of the statement of cash flows,how is an increase in noncash current assets handled?

• A)It is subtracted from net income in the cash flows from operating activities section.
• B)It is subtracted from current liabilities in the cash flows from financing activities section.
• C)It is added to net income in the cash flows from operating activities section.
• D)It is added to equipment purchases in the cash flows from investing activities section.

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Definitions:

Equity Multiplier

A financial ratio indicating the proportion of a company's assets that are financed by stockholders’ equity, showing the level of financial leverage.

Earnings Per Share

A company's net profit divided by the number of its outstanding shares, indicating the profitability per share.

Price-Earnings Ratio

A financial metric used to evaluate a company's share price relative to its earnings per share, helping investors assess the market value of a stock.

Times Interest Earned

is a financial ratio that compares a company's income before interest and taxes (EBIT) to its interest expenses, indicating how well the company can cover its interest obligations.