Question

Last year, Blanda Brothers had positive net cash flow, yet cash on the balance sheet decreased. Which of the following could explain the company’s financial performance? Select one: a. The company issued new common stock. b. The company issued new long-term debt. c. The company sold off some of its assets. d. The company purchased a lot of new fixed assets. e. The company eliminated its dividend.

Answer 1

Answer: Option D

Explanation: Cash flow can be of two types inflow and outflow. Inflow can be defined as those transactions in which money comes into the entity. And those transactions under which money leaves the entity is called outflow.

a. As common stock is a source of capital so issuance of it will bring cash to the company.

b. Debt is also a source of capital therefore its issuance will result in inflow.

c. Selling of assets will result in inflow of money.

d. Purchasing of assets involves spending of money thus outflow.

e. If the company did not pay the dividend it will result in no change in cash.

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From all of the above options only option d can result in decrease in cash thus correct option is D.