Certified Financial Management Specialist Practice Exam

Which of the following statements is true regarding cash flow from investing?

1. It includes cash from generating earnings.

2. It represents cash from asset transactions.

3. It primarily consists of cash paid to suppliers.

4. It signifies cash raised from issuing stock.

The correct answer is: It represents cash from asset transactions.

Cash flow from investing specifically pertains to the cash transactions related to the purchase and sale of physical and financial assets. This includes activities such as acquiring property, plant, and equipment or buying and selling investments like stocks and bonds. When a company invests in these assets, it is generally seeking to enhance its operational capacity or for potential financial returns, which ultimately affects the overall cash flow profile of the entity. The other options reference aspects of cash flow that do not fit the definition of investing cash flows. For instance, generating earnings is more related to operating cash flows, cash paid to suppliers involves operational expenses, and cash raised from issuing stock pertains to financing activities rather than investing activities. Thus, the statement emphasizing cash from asset transactions accurately highlights the nature of cash flow from investing.