Question

In: Finance

Sales Revenue                                     54670000 Cash Operating C

Sales Revenue                                     54670000

Cash Operating Costs                         47562900

Depreciation                                        3513000

Total Operating Costs                         51075900

Operating Income EBIT                     3594100

Interest Expenses                                623000

Taxable Income                                   2971100

Taxes                                                   1188440

Deferred Income                                 171500

Net Income                                         1611160

Using a Cash flow statement for the year, Explain how Greg would sum up the company’s cash position?

Solutions

Expert Solution

Cash flow statement is relevant only between two financial years. From given data, only cash generated during the year can be calculated - however there are still no data regarding investment cash flows and financing cash flows.

Even operating cash flows cannot be calculated if we the revenue includes credit sales. Hene, it has to be assumed that the entire sales revenue is cash sales.

Also, the deferred income is unrealized revenue and hence it does not form part of sales revenue account of Profit and Loss account and statement. Hence, it is wrong to have subtracted deferred income for calculating Net Income as it cannot have formed part of revenues as it goes to a liability account in balance sheet.

Considering the above, and using the data available,

Operating cash generated during the year = Cash sales - cash revenues - Interest - taxes

Operating cash generated during the year = $54,670,000 - $47,562,900 - $623,000 - $1,188,440 = $5,295,660

Alternatively,

Net Income (corrected for error) = $1,611,160 + $171,500 = $1,782,660

Operating cash generated = Profit After Tax + Non-cash expenses = 1,782,660 + 3,513,000 = $5,295,660

(Note: Only cash generated is calculated above assuming 100% cash sales. The final net cash position would depend on existing cash balance in balance sheet and other changes in asset and liability items from the previous year)

jeff jeffy answered 1 year ago
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