You can determine a company's cash situation by analyzing the cash flow statement. The cash flow statement also helps determine whether the company (1) is generating enough cash from its operations to make new investments and pay dividends or (2) will need to generate cash by issuing new debt or selling its assets.

Several analysts use net cash flow that is calculated by subtracting noncash revenues from the net income and adding back noncash expenses. If a firm has a lot of net cash flow, does that mean the firm's balance sheet cash account must be high?

No

Yes

Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the following table, identify which type of activity is described by each statement.

Operating Activity

Investing Activity

Financing Activity

A company records a decrease in its total raw materials inventory from the previous year.

The Yum chain of restaurants conducts an initial public offering to raise funds for expansion.

A pharmaceutical company buys marketing rights to sell a drug exclusively in East Asian markets.

Fitzi Chemical Co. earns revenue from its cash receipts from royalties.