Response:
(a) Cash flow generated from operating activities = 115,000
(b) Operating cash flow (NCOA) to current liabilities (CL):
Total current liabilities = 22000+9000 = 31000
NCOA relative to CL = 115,000/31000 = 3.71
Clarification:
Income Statement
$
Revenues 750,000
Cost of Goods Sold (470,000)
Gross profit 280,000
Salaries expenses (110,000)
Rental expenses (42,000)
Insurance costs (15,000)
Net Profit 113,000
Cash flow Statement
Net Profit 113,000
Cash flow derived from operating activities:
Increase in Accounts Receivable (54,000-49,000) (5,000)
Reduction in Inventories (66,000-60,000) 6,000
Growth in prepaid Insurance (8000-7000) (1000)
Rise in Accounts Payable (22000-18000) 4000
Decrease in wages payable (11000-9000) (2000)
Total increase in cash flow from operating activities 115,000
