Certified Financial Management Specialist Practice Exam

Which type of cash flow refers to cash from debt and equity?

1. Cash Flow from Operations

2. Cash Flow from Financing

3. Cash Flow from Investing

4. Comprehensive Free Cash Flow

The correct answer is: Cash Flow from Financing

The type of cash flow that refers to cash from debt and equity is classified as cash flow from financing. This category specifically encompasses the inflow and outflow of cash resulting from transactions involving a company's financial activities. It includes funds obtained through issuing debt (such as bonds and loans) and equity (such as issuing stocks), as well as cash payments made to repay debt, dividends paid to shareholders, or repurchases of shares. Cash flow from financing helps to assess how a company raises capital and how it manages its capital structure, providing insights into its financial health and stability. This is crucial for investors and creditors to determine the risk associated with the company’s financing activities and its ability to meet its financial obligations. Other types of cash flows, such as cash flow from operations, pertain specifically to the cash generated from a company’s core business activities, while cash flow from investing is related to cash spent on or received from capital expenditures, investments, or asset sales. Comprehensive free cash flow refers to the cash available for distribution after capital expenditures, taking a broader view of cash flow but not specifically targeting cash from financing activities.