Given the following data, determine the cash flow from operations (All figures are in $m):
Sales = 2,100
Increase in inventory = 200
Depreciation = 125
Increase in accounts receivable = 75
Decrease in accounts payable = 70
After tax profit margin = 35%
Gain on sale of machinery = 30
Net income = 2,100 * 35% = 735
Cash flow from operations = Net income + Depreciation (Non cash expense does not incur actual cash outflow) – Increase in inventory (increase in asset is a cash outflow) – Increase in accounts receivable (increase in asset is a cash outflow) – Decrease in accounts payable (decrease in liability is a cash outflow) – Gain on sale of machinery (using the indirect method non-cash income statement items must be adjusted for).
Therefore, cash flow from operations = 735 + 125 – 200 – 75 – 70 – 30 = $485m
Net Income -> Adjustments -> CFO.
Since, Net Income includes any CFF and CFI, they need to be adjusted as well to get CFO.
Therefore, subtract the gain on sale of land as CFI.
You’re right that it’s CFI Alex, but it still needs to be subtracted…
so 485 is correct.
Any holes in my thinking?
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