Question

Using the excerpt from the Animal World Company statement of cash flows, analyze thoroughly the cash flow from operating activities. Offer possible reasons for the changes identified.

Operating activities (USD) 2015 2014

Net income -2800 -9800

Depreciation and amortization 21800 21700

Loss on disposal of PPE 11000 3100

Increase (decrease) in cash resulting

from changes in:

Accounts receivable -10100 -9200

Inventories -35500 -56500

Accounts payable and accrued expenses 54700 24200

Net cash provided (used) by operating activities 39100 -26500

Answer 1

		2015			2014
cash flow from operating activities
net income		-2800			-9800
add depreciation		21800			21700
add loss on disposal of PPE		11000			3100
Increase / decrease in working capital
accounts receivables		-10100			-9200
Inventories		-35500			-56500
accounts payable and accrued expenses		54700			24200
cash flow from operating activities		39100			-26500
changes in the cash flow from operating activities: following are the reasons for changes in cash flow from operating activities
(1) net loss is less in comparison to previous year.
(2) Higher amount of non cash expenses are deducted from gross profit in comparison to previous year like loss on disposal of PPE and depreciation expense which results in more cash flow from operations
(3) Investment in inventories has reduced significantly over the previous year resulting from freeing of working capital
(4)use of credit purchase has increased and payment for expenses has delayed which results in decrease in cash requirement.
so overall all these points results in change in cash flow from operating activities