![]() ![]() The cash manager will need to monitor the increase in net working capital. Operating cash calculation #3 Operating profit: It reduces net cash flow, so it’s an important further deduction in calculating net operating cash flow. = Net working capital (increase) / decrease Our company has made an additional investment in net working capital of 39: Operating cash calculation #2 Operating profit: So we need to add back the depreciation and amortisation, as non-cash items within the net operating profit. But accounting depreciation and amortisation charges are not cash flows. ![]() Operating profit has been stated after charging depreciation and amortisation of #2. Operating cash calculation #1 Operating profit:ĭEPRECIATION AND AMORTISATION AREN'T CASH (Or else the tax authority will quickly chase the business.) The business must pay the tax authorities promptly. Our first adjustment to the operating profit before tax of 50 is to deduct the tax paid of 7. Our calculation of the net operating cash flow starts with the adjusted operating profit. Operating profit is stated after charging depreciation and amortisation of:Īdditional investment in net working capital:Ĭalculate the net operating cash flow for the year and comment on your findings for the cash manager.
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