Certified Financial Management Specialist Practice Exam

What does positive cash flow indicate about a company's operations?

1. It shows the company is losing money overall

2. It indicates a lack of investment opportunities

3. It signifies healthy company operations

4. It means the company has high debt levels

The correct answer is: It signifies healthy company operations

Positive cash flow indicates that a company is generating more cash than it is spending over a specific period. This situation typically signifies healthy company operations as it suggests that the organization can cover its operating expenses, invest in growth opportunities, pay off debt, and return value to shareholders. Healthy cash flow implies a solid revenue generation process and effective cost management. It reflects customer demand for the company's products or services, as well as efficient collection of receivables. In essence, when a company maintains positive cash flow, it is often in a good position to continue its operations, expand, and respond to market opportunities, which is a fundamental indication of operational health.