Contrast FCF vs NI; choose one statement

Q: Contrast FCF vs NI; choose one statement

This is a Statistics & Math interview question from Snowflake for Data Scientist roles. View the full question and solution on PracHub.

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Question

An asset-heavy company reports rising net income while free cash flow (FCF) is negative for three straight quarters. a) Explain when and why FCF can be a superior indicator to net income for valuation, solvency, and dividend safety. Quantify the reconciliation from NI to FCF (non-cash charges, working-capital changes, capex) and show a brief numeric example. b) Identify at least two concrete red flags where NI looks healthy but FCF indicates risk (e.g., revenue recognition timing, capitalized costs, ballooning receivables), and one scenario where FCF can be temporarily misleading. c) If you could access only one statement—Balance Sheet (BS), Income Statement (IS), or Cash Flow (CF)—for evaluating the business, which would you choose for: i) credit risk, ii) profitability trend, and iii) cash runway? For each choice, list three critical risks and missing pieces of information you cannot assess without the other two statements, and how you would approximate them (e.g., using footnotes or ratios). Name specific metrics that become impossible or unreliable (e.g., FCF margin, interest coverage, current ratio).

Contrast FCF vs NI; choose one statement

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