Which type of cash flows are share repurchases (e.g., treasury stocks)?

Question

BlackTom AI · Accepted Answer

When evaluating the nature of share repurchases, it helps to recall how cash flow categories are defined in financial reporting.
Option 1: Investing Cash Flows. This category covers purchases and sales of long-term assets like property, plant, equipment, or investments. Share repurchases are not about acquiring or selling operating assets or investments, so this is not correct.
Option 2: No cash flows involved in share repurchases. In reality, repurchasing shares involves cash going out of the company to buy back its own stock, so this statement misrepresents the cash impact and is incorrect.
Option 3: Operating Cash Flows. These reflect cash effects of core business operations, such as receipts from customers and payments to suppliers. Treasury stock activity does not relate to day-to-day operating activities, making this option inaccurate.
Option 4: Financing Cash Flows. This category includes transactions with equity and debt, such as issuing or repurchasing stock, paying dividends, or taking on debt. Share repurchases reduce cash and are financed through equity financing activities, so this is the correct classification.
Thus, among the choices, the only one that aligns with how share repurchases are categorized in the cash flow statement is Financing Cash Flows.

BU.210.650.51.FA25 Quiz II- Requires Respondus LockDown Browser

Which type of cash flows are share repurchases (e.g., treasury stocks)?

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