Compared with its net income, a mature company’s operating cash flow is most likely:
- the same.
- lower.
- higher.
Solution
C is correct. For a mature company, because net income includes non-cash expenses (depreciation and amortization), operating cash flow typically exceeds net income.
A is incorrect. For a mature company, net income includes non-cash expenses (depreciation and amortization), so it is expected and desirable for operating cash flow to exceed net income, not for them to be equal.
B is incorrect. For a mature company, net income includes non-cash expenses (depreciation and amortization), so it is expected and desirable for operating cash flow exceeds net income. If operating cash flows were lower than net income, this would be an indication of poor earnings quality.
don’t you think answer should be C.
plz help in understanding this question . if net income has non cash expenses. so it should be lower than operating cash flow. coz operating cash flow excludes non cash items. plz correct me if I have wrong understanding of this concept or missing something