Question

A Company’s balance sheet consists primarily of intangible assets causing the Company to have a negative tangible net worth. Revenue is stable and the Company had a net loss. Despite these factors, the Company’s net cash flow from operations has increased. Why?

Answer 1

FIrst of all intagible assets are always recorded in investing activities and not in operating activities. Increase or decrease or change in intangible assets have no impact on cash flow from operating activity while calculating. So the change in assets does not effect the cash flow from operating activity. So any purchase of assets tangilble and intangible or any change or sell of both tangible and intagible assets have no effect in the cash flow from operating activity. And tangilble and intangible assets comes under head of long term assets so they have no effect on operating activity. Only current assets effect the cash flow from operating

Now since It is a stable revenue and there is net loss. But net loss include deduction of depreciation in it and depreciation is a non cash expense. So while calculating cash flow from operating activity the depreciation expenses are added back which in turn increases the net profit by reducing the net loss. So despite the factors it is normal for a company to have increase net cash flow from operating activity.