Question

A banker contemplating a loan to a company should focus on which section(s) of the cash flow statement in order to determine the company's ability to repay the loan?

A. Operating and investing activities
B. Investing activities
C. Financing activities
D. Operating activities

Typical financing activities do NOT include the following:

A. Purchase of shares for retirement.
B. Purchase of short- or long-term investments for cash
C. Principal payments on short- and long-term borrowings
D. Proceeds from issuance of short- and long-term borrowings.

Which of the following is a cash equivalent?

A. A demand note receivable from another company
B. A short term bank loan
C. Government of Canada 180-day treasury bill
D. A note payable to a supplier

Answer 1

1. Option D He would like to determine the cash, the company is generating from its operations. Hence the banker should focus on the operating activities section of cash flow statement.

2. Option B Purchase of investments fir cash is reported under investing activities section. Hence option B is the answer

3. Option A (if you face any issues, select option C) Cash equivalents are those assets/financial instruments that can be converted to cash immediately (generally within 90 days)