Question

​Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's net cash provided from operations increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
Select one:
a. ​The company cut its dividend.
b. ​The company made large investments in fixed assets.
c. ​The company sold a division and received cash in return.
d. ​The company issued new common stock.
e. ​The company issued new long-term debt.

Answer 1

Answer:

Option B ​The company made large investments in fixed assets.

Explanation:

The reason is that the reaminder of the options talk about the increase of the cash not a decrease in cash amount. If the company cuts dividend then it is retaining cash, if the company is raising finance then it is increasing cash or if the company is selling its division or assets then it is raising cash.

These things constitutes to increase in cash flow.

The decrease is cash occurs when the company invests (cash outflow). So the company is making cash outflows which means cash level will decrease.