Certified Financial Management Specialist Practice Exam

Which of the following describes cash flow ratios?

1. Measurements of market share

2. Metrics used to evaluate cash flow performance

3. Indicators of net income

4. Calculations of sales forecasts

The correct answer is: Metrics used to evaluate cash flow performance

Cash flow ratios are metrics that help assess a company's liquidity and cash flow performance. They analyze the relationship between cash generated from operations and debts or investments, offering insights into how well a company can meet its short-term obligations or capitalize on business opportunities. These ratios are crucial for understanding the efficiency of cash management within a business and can provide valuable information for investors, creditors, and management. By focusing on cash flow rather than just net income, these ratios give a clearer picture of the company's actual cash availability, which is critical for assessing the sustainability of operations and the ability to fund growth or distribution. The other options, while related to financial performance, do not specifically pertain to cash flow. Market share, net income, and sales forecasts involve different areas of analysis within financial management and provide insights into aspects such as profitability, competitive positioning, and projected revenue trajectories rather than direct cash flow performance.