What is the impact of high capital expenditure on ABC's cash flow?

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Multiple Choice

What is the impact of high capital expenditure on ABC's cash flow?

Explanation:
Capital expenditure is spending on long-term fixed assets. When ABC makes a high outlay on these assets, cash leaves the business now and is recorded as an investing-activities outflow. Unless there are offsetting financing inflows or strong operating cash inflows in the period, the net cash flow becomes negative in the short term. This also reduces immediate liquidity because less cash is available to meet other obligations. The investment may generate future benefits and improve cash flow later, but the immediate impact is a negative net cash flow.

Capital expenditure is spending on long-term fixed assets. When ABC makes a high outlay on these assets, cash leaves the business now and is recorded as an investing-activities outflow. Unless there are offsetting financing inflows or strong operating cash inflows in the period, the net cash flow becomes negative in the short term. This also reduces immediate liquidity because less cash is available to meet other obligations. The investment may generate future benefits and improve cash flow later, but the immediate impact is a negative net cash flow.

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