IB Business Management - 3.7 Cash Flow Quiz

Which of the following statements is TRUE about profit and cash flow?

• Profit and cash flow are the same.

• A business can be profitable but still face cash flow problems.

• Cash flow is always higher than profit.

• Profit is the total amount of money received from sales.

Which of these factors affects cash flow but NOT profit?

• Depreciation

• Sales revenue

• Cost of goods sold

• Net profit

A business sells goods on credit. How does this affect profit and cash flow?

• Increases both profit and cash flow immediately

• Increases profit but does not immediately improve cash flow

• Increases cash flow but not profit

• Has no effect on either

What is the formula for working capital?

• Fixed assets – current liabilities

• Current assets – current liabilities

• Current liabilities – current assets

• Total revenue – total expenses

Which of the following is a current liability?

• Machinery

• Accounts payable

• Retained earnings

• Long-term loan

A negative working capital means that:

• The business has more current assets than liabilities

• The business is liquid and has good financial health

• The business may struggle to pay short-term debts

• The business is generating high profits

Which of the following ratios is used to assess a company’s liquidity?

• Gross profit margin

• Current ratio

• Return on investment (ROI)

• Debt-to-equity ratio

A current ratio of 0.8:1 suggests that:

• The business is in a strong liquidity position

• The business may struggle to meet short-term obligations

• The business has too much cash

• The business is highly profitable

What does a quick ratio (acid-test ratio) of less than 1 indicate?

• The company has too much working capital

• The company has difficulty covering short-term liabilities with liquid assets

• The company is highly profitable

• The company has more liquid assets than current liabilities

What is the primary purpose of a cash flow forecast?

• To predict business profits

• To determine the company’s break-even point

• To estimate future cash inflows and outflows

• To analyze long-term business investments