Certified Financial Management Specialist Practice Exam

Which analysis method focuses on evaluating changes in cash flow over a period?

1. Break-even Analysis

2. Trend Analysis

3. Cash Flow Analysis

4. Comparative Analysis

The correct answer is: Cash Flow Analysis

The method that focuses on evaluating changes in cash flow over a period is cash flow analysis. This approach provides a comprehensive understanding of how cash is generated and utilized within a business over time. By examining inflows and outflows, cash flow analysis enables financial managers to assess the liquidity position of a company, identify trends in cash management, and make informed decisions regarding future operations and investments. This analysis is crucial for understanding the operational efficiency and financial health of a business, as it highlights periods of surplus or deficit in cash, which can impact strategic decisions. Unlike trend analysis, which looks at patterns over time without a specific focus on cash, or comparative analysis, which typically benchmarks performance against other entities, cash flow analysis zeroes in on the specific financial dynamics related to cash transactions. Break-even analysis, on the other hand, determines the point at which total revenues equal total costs, but does not directly assess cash flow changes over time.