Chapter 03 — Entrepreneurship II

Exercise Your Knowledge

1) What does a cash flow statement fail to show in terms of a company's financial performance?

a) Liquidity positionFeedback: Incorrect! A cash flow statement does provide information about a company's liquidity position by tracking the inflow and outflow of cash.

b) Net profitFeedback: Correct! A cash flow statement does not show a company's net income because it disregards non-cash items or transactions that do not involve cash. The net profit is shown in the profit and loss statement.

c) Window-dressing possibilitiesFeedback: Incorrect! The likelihood of window-dressing is greater in the case of a cash situation, indicating that it can be manipulated.

d) Industry comparisonFeedback: Incorrect! Cash flow statement doesn't estimate the financial footing of a company, making it impossible to compare with other similar industries.

e) Financial policies for the futureFeedback: Incorrect! Cash flow statement helps the company in deciding on financial policies for the future by providing crucial information related to monetary funds.

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