Question

Background information:

Anne Schippel, business banker, is analyzing Dry Supply’s financial statements and has complied a statement of cash flows for 20xz. The operating activities section is show below.

DRY SUPPLY STATEMENT OF CASH FLOWS FOR THE YEAR ENDING 12/31/20XZ ($ IN $000s)

CASH FLOW FROM OPERATING ACTIVITES

Cash flow from operating activities

Net Income                                                                               $ 23

Adjustments to reconcile ne

Income to net cash depreciation                                               13

Changes in current assets and current liabilities

   Accounts receivable (increase) decrease                                1

    Inventory (increase) decrease                                                 5             

   Accounts payable – trade increase                       

   (Decrease)                                                                              (15)

    Income taxes payable increase (decrease)                              1

    Accrued bonuses increase (decrease)                                     1

                Net cash provided by operating activities                   $29

What are some questions Anne Schippel might ask Dry Supply to better understand the operating cash flows of the business?

Answer 1

Operating cash flow of the business is the measure that the business is generating sufficient cash flow from its normal business activities and is able to grow its operations in future.

Anne Schippel might ask Dry Supply these questions:

1. What is the method of Depreciation. what is the rate of depreciation and on which assets it is calculated?

2. What is the credit period for accounts receivable and why there is a decrease in accounts receivable?

3. What is the Inventory turnover period and why there is decrease in Inventory?

4. Why there is a Decrease in accounts payable?

5. Is the company doing most of its transactions in Cash?