Multiple Choice Questions
1. Generally, the operating cash flow is expected to be negative
(a) True
(b) False
2. How is the available cash flow calculated?
(a) Cash flow from operating activities (assumed to be positive) + Cash flow from investing activities (assumed to be negative)
(b) Cash flow from investing activities + Cash flow from financing activities
(c) Cash flow from operating activities + Cash flow from financing activities
(d) Cash flow from operating activities – Dividends paid
3. How is free cash flow calculated?
(a) Cash flow from operating activities + Cash flow from investing activities
(b) Available cash flow + Cash flow from financing activities
(c) Available cash flow – Dividends paid
(d) Available cash flow – Cash flow from financing activities
4. Which of the following ratios is the cash liquidity ratio?
(a) Operating cash flow/Average current assets
(b) Financing cash flow/Average current liabilities
(c) Financing cash flow/Average current assets
(d) Operating cash flow/Average current liabilities
5. What ratio is used to calculate the ‘cash flow yield’?
(a) Operating cash flow/Net sales
(b) Operating cash flow/Interest paid
(c) Operating cash flow/Net income
(d) Operating cash flow/Average current liabilities
6. Which type of accounts manipulation mainly consists in a reduction of the variance of the earnings stream?
(a) Creative accounting
(b) Earnings management
(c) Income smoothing
(d) Big bath accounting
7. Which factor(s) influence(s) the quality of earnings?
(a) Accounting methods
(b) Accounting estimates
(c) Classification of exceptional items in the income statement
(d) All of these
8. Cash-based earnings management is easier to detect than accrual based earnings management
(a) True
(b) False
9. Which statement below is not true?
(a) The income from assets disposals is normally non-recurring
(b) It is difficult to manipulate net income since it is accrual based
(c) A sharp increase of receivables during the period may reveal that the company has a weakened negotiation power vis--vis its customers
(d) When operating cash flow is much larger than net income, we may expect high future growth from the company
10. Which manipulation cannot be detected by comparing net income and operating cash flow?
(a) R&D capitalization
(b) Increasing profit by selling a piece of land
(c) Reducing profit by exaggerating depreciation/ amortization expenses
(d) Inflating sales by booking some fake sales (without cash inflows)