Question

g the balance sheet of innovative products reports total assets of $610,000 and $810,000 at the beginning and end of the year, respectively. the cash return on assets for the year is 20%. calculate innovative products' net cash flows from operating activities (operating cash flows) for the year.

Answer 1

The innovative products' net cash flows from operating activities (operating cash flows) for the year is $142,000

Beginning Total Assets   =  $610,000

Ending total assets   =  $810,000

Average Total Assets in use =  $710,000  ($610,000 + $810,000) ÷ 2

Cash return on Asset   = 20%  

Cash Flow from operating activities    

= Average Assets × 20%  

=  $710,000 × 20%

= $142,000

The amount of cash generated by a company's normal business operations is measured as operating cash flow (OCF). Operating cash flow indicates whether a company can generate enough positive cash flow to sustain and grow its operations; otherwise, external financing for capital expansion may be required.

Operating cash flow is an important metric for determining a company's core business activities' financial success.

A cash flow statement's first section depicts operating cash flow, which also includes cash from investing and financing activities.

The indirect method and the direct method are both used to depict operating cash flow on a cash flow statement.

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