High School

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Which of the following best describes cash flow from financing activities? Select one:

A. Interest income, plus dividend income, minus taxes

B. Interest paid, plus dividends paid, plus increase (or minus decrease) in stock, plus increase (or minus decrease) in debt

C. Interest expense, minus dividends paid

D. Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid

Answer :

Final answer:

Cash flow from financing activities is represented by increases or decreases in equity and debt, alongside payments made for interest and dividends, hence the correct answer is d. Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid.

Explanation:

The question seeks to identify which option best describes cash flow from financing activities. The correct answer is 'd. Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid.' This selection accurately encompasses the main components involved in cash flow from financing activities, highlighting the impact of changes in equity and debt levels, as well as the cost of these financing decisions including interest and dividends paid.

Cash flow from financing activities is a crucial section of a business's cash flow statement, revealing how a company raises capital and returns it to shareholders. It includes transactions such as issuing or buying back shares, borrowing or repaying debt, and making dividend payments. It effectively shows the net flows of cash used to fund the company’s operations, reflected through changes in its capital structure.

Understanding the dynamics of cash flow from financing activities is fundamental for analyzing a company's financial sustainability and its decisions regarding capital structure, dividend policies, and borrowing strategies. It serves as a direct indicator of how a company finances its operations and growth, providing insights into its financial health and long-term viability.

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