A company made a profit of KSh 240,000 after charging depreciation of KSh 60,000. During the year inventory rose by KSh 20,000, receivables rose by KSh 10,000 and payables rose by KSh 5,000. What is the net cash flow from operating activities?

Answer and explanation

Correct answer: A. KSh 275,000

  1. Step 1: Start with profit and add back the non-cash charge: 240,000 + 60,000 = 300,000. Step 2. Deduct the increase in inventory and receivables, which tie up cash: 300,000 - 20,000 - 10,000 = 270,000. Step 3. Add the increase in payables, which holds cash back: 270,000 + 5,000 = KSh 275,000. Answer: KSh 275,000. Why not the others: KSh 335,000: That adds the increases in inventory and receivables, but they use cash. KSh 155,000: That deducts depreciation, which is a non-cash charge and must be added back. KSh 300,000: That ignores the changes in working capital.

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