Series 79 practice questionmediumFinancial Statement Analysis
A company reports positive net income but negative operating cash flow. Which is a likely explanation?
- AHigh cash balances
- BDecreased cost of goods sold
- CLarge increases in accounts receivable✓ Correct answer
- DAccelerated loan repayments
Explanation
Why C — Large increases in accounts receivable
A rise in accounts receivable reduces cash flow even if income is positive, as sales are booked but cash not yet received. Ignoring cash flow timing can mask liquidity issues.
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