Certified Financial Management Specialist Practice Exam

What is cash flow from operations primarily associated with?

1. Cash from investments

2. Cash generated from core activities

3. Cash from financing activities

4. Cash from asset transactions

The correct answer is: Cash generated from core activities

Cash flow from operations is primarily associated with cash generated from core activities of the business. This includes the inflow and outflow of cash that results directly from a company’s primary business activities, such as selling goods or providing services. It reflects the company's ability to generate cash through its regular operational activities, which is crucial for maintaining day-to-day operations, paying bills, and supporting growth initiatives. In contrast, cash from investments is related to cash flows that arise from a company's investment activities, such as purchasing or selling physical assets or financial investments. Cash from financing activities pertains to cash flows that result from borrowing or repaying debt, as well as issuing or repurchasing equity. Cash from asset transactions focuses on the buying and selling of physical or intangible assets, which does not represent the operational capacity of a business. Therefore, emphasizing cash generated from core activities accurately captures the essence of cash flow from operations.