Question

A firm generated net income of $862. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from the operating activity?

Answer 1

To calculate the net cash flow from the operating activity, start with the firm's net income and make adjustments for non-cash expenses and changes in working capital.

Step-by-step explanation:

To calculate the net cash flow from the operating activity, we need to start with the firm's net income and make adjustments to account for non-cash expenses and changes in working capital.

• Starting with net income of $862, we add back the depreciation expense of $47 since it is a non-cash expense.
• Next, we subtract dividends paid of $25 since they are a cash outflow.
• Next, we adjust for changes in working capital. Accounts payables decreased by $13, accounts receivables increased by $28, and inventory decreased by $14. Since these changes are related to operating activities, we add them back.
• Finally, we subtract the decrease in net fixed assets of $8 since it represents a cash outflow.

Net Cash Flow from Operating Activity = Net Income + Depreciation - Dividends + Decrease in Accounts Payables + Increase in Accounts Receivables - Decrease in Inventory - Decrease in Net Fixed Assets.