Question

The earnings reported by a company can be very different from its cash flows. There are companies that report very large positive earnings while also generating large negative cash flows. Which of the following is most likely to create this phenomenon? a. High capital expenditures, high depreciation, decreasing working capital b. Low capital expenditures, high depreciation, decreasing working capital d. Low capital expenditures, low depreciation, decreasing working capital c. High capital expenditures, low depreciation, increasing working capital e. Low capital expenditures, high depreciation, increasing working capital

Answer 1

Answer:

High capital expenditures, low depreciation, increasing working capital        

Explanation:

In simple words, cash flows refers to the in and out transnfer of cash from and by a company while operating their business and doing several differnet transactions. You just had to spend a great deal for cashflow to really be unfavorable, despite higher profits. Reinvestment consists of two components: the disparity among the capital expenditure and the deterioration which is also termed as net capital expendture as well as  the working capital impact (with diminishing cash flows increasing).