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      Question

      A large NBFC reported an increase in operating profit

      over the last year. However, its cash flow from operations was negative due to a sharp rise in receivables and a decrease in payables. Analysts are questioning the firm’s liquidity and sustainability. Which tool would be most relevant in identifying such a red flag?
      A Comparative Balance Sheet Correct Answer Incorrect Answer
      B Common Size Statement Correct Answer Incorrect Answer
      C Fund Flow Analysis Correct Answer Incorrect Answer
      D Cash Flow Statement Correct Answer Incorrect Answer
      E Trial Balance Correct Answer Incorrect Answer

      Solution

      The Cash Flow Statement reveals actual cash movement and highlights discrepancies between accounting profit and real liquidity, exposing operational stress not visible in profit figures.

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