Question

Which of the following make up the components of cash flow to equity: Question 3 options: Net income, Operating cash flow, Investing cash flow, Financing cash flow. Net income, Depreciation & Amortization, Advertising Expense, Dividends. Net income, Depreciation & Amortization, Working Capital Change, Capital Expenditure. Net income, Depreciation & Amortization, Capital Expenditure, Operating Expense.

Answer 1

The cash flow to equity (CFE) is generally used to measure the quantum of cash available to the equity shareholders post incurring of expenses, and payment of debt. Among the options provided, the option which has

Net Income - It is the positive cash flow to equity.

Depreciation & Amortisation - Owing to the D&A, the tax expense reduces and accordingly, the Net Income increases. D&A is a non-cash expense.

Working capital change - It can be either negative/positive cash flow to equity depending on the change.

Capital Expenditure - It is negative cash flow to equity, as the money is spent. Generally, it also considers the debt availed and debt paid, as the cash flow to equity depends on the funding structure as well.