Explanation:
To calculate cash flow from operating activities, we start with net income and make adjustments for non-cash items and changes in working capital.
Given:
Step 1: Calculate depreciation expense Accumulated depreciation increased from £80 million to £120 million, so: Depreciation expense = £120 - £80 = £40 million
Step 2: Calculate changes in working capital
Accounts receivable: Increased from £55 to £65 = Increase of £10 million
Inventory: Decreased from £140 to £120 = Decrease of £20 million
Accounts payable: Decreased from £40 to £25 = Decrease of £15 million
Step 3: Calculate cash flow from operations Cash flow from operations = Net income + Depreciation expense - Increase in accounts receivable + Decrease in inventory - Decrease in accounts payable
= £860 + £40 - £10 + £20 - £15 = £860 + £40 = £900 = £900 - £10 = £890 = £890 + £20 = £910 = £910 - £15 = £895 million
Therefore, the correct answer is B. 895.
Verification:
This matches option B.
Ultimate access to all questions.
No comments yet.
An analyst gathers the following information (in £ millions) from a company's year-end balance sheet.
| Year 2 | Year 1 | |
|---|---|---|
| Accounts receivable | 65 | 55 |
| Inventory | 120 | 140 |
| PP&E | 1,400 | 1,400 |
| Accumulated depreciation | 120 | 80 |
| Accounts payable | 25 | 40 |
During Year 2, net income was £860 million. There were no acquisitions or sales of property, plant, and equipment and no write-downs. Cash flow from operating activities (in £ millions) for Year 2 is:
A
B
C