Series 79 practice questionmediumFinancial Statement Analysis
A company reports $80 million in net income, $15 million in depreciation, an increase in accounts receivable of $10 million, and a decrease in accounts payable of $5 million over the year. When converting net income to operating cash flow, which amount should be subtracted due to working capital changes?
- A$5 million
- B$10 million
- C$15 million✓ Correct answer
- D$25 million
Explanation
Why C — $15 million
An increase in accounts receivable is a $10 million use of cash. A decrease in accounts payable is a further $5 million use of cash. Together, working-capital changes reduce operating cash flow by $15 million, so C is correct.
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