Final answer:
To compute net cash provided by operating activities, calculate the accounting profit by subtracting explicit costs from revenues. Adjust this profit for non-cash transactions and changes in working capital to find the actual cash flow. Present discounted value is used for valuing future cash flows and not for directly calculating the net cash flow from operations.
Step-by-step explanation:
Net Cash Provided by Operating Activities
To compute net cash provided or used by operating activities, one needs to follow a series of steps. Firstly, you must calculate the company’s accounting profit. To do this, subtract the explicit costs from the revenue. For instance, if revenues are $200,000 and explicit costs are $85,000, then the accounting profit would be $115,000. However, the net cash provided by operating activities is different from accounting profit as it considers adjustments for non-cash transactions and changes in working capital.
The present discounted value of future profits is useful when assessing investment decisions and the value of future cash flows today. This involves applying a discount rate to future benefits to obtain their present value. But this concept is not used in the direct calculation of net cash flow from operating activities, which is typically derived from the cash flow statement.
When considering corporate profits after tax, and adjusting for inventory and capital consumption, it's important to include these figures in your cash flow calculation for a complete picture. These adjustments ensure that the net cash flow accurately reflects the tangible inflow and outflow of cash within the business for the period in question.