DECA Financial Consulting Complete Practice Exam

The three main components of cash flow are operating activities, investing activities, and financing activities because they encompass the various sources and uses of cash for a business.

Operating activities include cash transactions related to the core operations of the business, such as cash received from sales and cash paid for operating expenses like salaries and utilities. This is vital for understanding how well a company generates cash from its day-to-day activities.

Investing activities refer to cash flow from purchases and sales of long-term assets, such as property, equipment, or investments in other companies. This component helps stakeholders understand how much the company is investing for future growth and whether it’s generating returns on its investments.

Financing activities involve cash transactions related to obtaining and repaying capital, including issuing stock and borrowing funds as well as repaying loans. Monitoring this aspect provides insight into how a company manages its capital structure and financing.

This structure aligns with generally accepted accounting principles and reflects a comprehensive picture of how a company controls its cash flow across different areas. The other options focus on isolated elements of financial performance or position rather than the comprehensive cash flow analysis that incorporates all aspects of cash movements in a business.