Which of the following equation is known as Cash Flow (CF) identity?
Correct answer: D. CF from Assets = CF to Creditors + CF to Stockholder
- A. CF from Assets = CF to Creditors - CF to Stockholder
- B. CF from Assets = CF to Stockholders - CF to Creditors
- C. CF to Stockholders = CF to Creditors + CF from Assets
- D. CF from Assets = CF to Creditors + CF to Stockholder
Explanation
Cash flow from assets must equal the cash distributed to creditors plus the cash distributed to stockholders. This is the cash flow identity because all cash generated by assets is claimed by one of these two financing groups.
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