Question

A fundamental analysis is reviewing a corporation's income statement. For the period, the company reported net sales of $10 million, cost of goods sold of $6 million, depreciation expense of $1 million, interest on long-term debt of $1 million, and income taxes of $500,000. With this information, the analyst knows that the company's cash flow from operations was

Answer 1

Answer:

the company's cash flow from operations was $2,500,000.

Explanation:

Calculation of cash flow from operations :

Net Sales                              $10,000,000

Less Cost of Goods Sold    ($6,000,000)

Gross Profit                            $4,000,000

Less Expenses :

Depreciation expense         ($1,000,000)

Interest on long-term debt  ($1,000,000)

Income tax expenses             ($500,000)

Operating Profit / (Loss)         $1,500,000

Add Back Depreciation         $1,000,000

Operating Cash flow             $2,500,000