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26 January, 17:10

When looking at the financial statements, you notice that a company has cash flows from operating and investing activities that are significantly lower than their cash flows from financing activities. What can you assume about the company

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  1. 26 January, 17:30
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    Assumption is that this is a healthy company

    Explanation:

    A higher proportion of cash flow from financing activities implies that there is availability of funds in the company. It means that there is more money entering the company than is going out, which implies a rise in the company's assets.

    A second indication of more money from financing activities is that the company possesses the ability to maintain and/or grow its operations. With such money it can buy equipment to boost its production and its revenue as a result, it can pay off loans where necessary or invest the money in short term deposits to generate interest income in addition to its trading profit.

    Lastly, it indicates it can pay fund providers dividends and/or interest on loans depending on its capital structure.
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