Cash Flow from Operations

CFA Level I FRA
#1

Could someone explain this question? I can’t seem to understand…

Pacific, Inc.'s financial information includes the following, with “change” referring to the difference from the prior year (in $ millions):

Net Income

27

Change in Accounts Receivable

+4

Change in Accounts Payable

+1

Change in Inventory

+5

Loss on sale of equipment

-8

Gain on sale of real estate

+4

Change in Retained Earnings

+21

Dividends declared and paid

+4

Pacific, Inc.'s cash flow from operations (CFO) in millions was:

#2

Indirect method of calculating CFO. Is your question around how to account for each of the non-cash and non-operating line items?

#3

Which part of it do you not understand? or is it all of it?

#4

CFO = Net income - increase in accounts receivable + increase in accounts payable - increase in inventory + loss on sale of equipment - gain on sale of real estate.

Note that I’m assuming the loss and gain in the sale of assets in this exercise are already adjusted for taxes (after-tax amounts).

CFO = 27 - 4 + 1 - 5 + 8 - 4 = 23

#5

Yea, Harrogath got it right…