What is the net cash flow formula as stated?

What is the net cash flow formula as stated?

• A. Current assets - current liabilities
• B. Current liabilities - current assets
• C. Net income - depreciation
• D. Operating cash flow - investing cash flow

Answer: (A)

The idea being tested is how liquidity is represented in a short-term frame. Current assets are resources that can be converted to cash within a year, while current liabilities are obligations due within the same period. Subtracting the two gives the net working capital, the amount of cushion available to cover short-term needs. In this context, that cushion is described as net cash flow, so current assets minus current liabilities is the best fit because it directly reflects the liquidity available after meeting near-term obligations. Flipping the order would imply a negative cushion and doesn’t convey the available liquidity in the same way. Net income minus depreciation isn’t a cash-flow measure since depreciation is a non-cash expense; to reflect cash flow, you’d adjust net income by adding back depreciation, not subtracting it. And taking operating cash flow minus investing cash flow mixes two separate cash-flow components and doesn’t yield a single standard net cash figure.

The idea being tested is how liquidity is represented in a short-term frame. Current assets are resources that can be converted to cash within a year, while current liabilities are obligations due within the same period. Subtracting the two gives the net working capital, the amount of cushion available to cover short-term needs. In this context, that cushion is described as net cash flow, so current assets minus current liabilities is the best fit because it directly reflects the liquidity available after meeting near-term obligations.

Flipping the order would imply a negative cushion and doesn’t convey the available liquidity in the same way. Net income minus depreciation isn’t a cash-flow measure since depreciation is a non-cash expense; to reflect cash flow, you’d adjust net income by adding back depreciation, not subtracting it. And taking operating cash flow minus investing cash flow mixes two separate cash-flow components and doesn’t yield a single standard net cash figure.