Series 79 practice questionmediumFinancial Statement Analysis
Why can cash flow from operations exceed net income when a company records a large depreciation charge of $18 million?
- ADepreciation is treated as financing cash flow
- BDepreciation increases revenue recognition
- CDepreciation reduces net income but is added back on the cash flow statement because it is non-cash✓ Correct answer
- DDepreciation creates an investing cash inflow
Explanation
Why C — Depreciation reduces net income but is added back on the cash flow statement because it is non-cash
Depreciation reduces net income but is added back on the cash flow statement because it is non-cash Under the indirect method, analysts start with net income and add back non-cash expenses such as depreciation. That is why companies with large fixed asset bases often report operating cash flow above net income.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 477+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Collection, Analysis & Evaluation of Data questions
- A company generates EBIT of $60 million and annual interest expense of $10 million. What is the interest coverage ratio?
- A manufacturer has 75 days of inventory, 34 days sales outstanding, and 27 days payables outstanding. What is its cash…
- Summit Retail reports revenue of $220 million, cost of goods sold of $132 million, SG&A expense of $18 million, and…
- A equity capital markets banker sees days sales outstanding rise from 50 days to 62 days while reported revenue growth…