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CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I

An IFRS reporter had the following cash items for the year (in €000): cash received from customers 900; cash paid to suppliers and employees 640; dividends received from equity investments 20; interest paid 30; dividends paid to shareholders 50; purchase of equipment 120. The company classifies interest paid as operating and dividends received as investing. Cash flow from operating activities is closest to:

Operating cash flow is customer receipts of 900 less payments of 640 and interest paid of 30, giving about €230,000. Dividends received are classified as investing and dividends paid as financing, so neither affects operating cash flow.

  1. A€190,000Correct
  2. B€230,000
  3. C€260,000

Explanation

Operating = 900 − 640 − 30 = 230 if interest is operating; the policy places interest paid in operating, so 230 − ... check: 900 − 640 = 260; less interest 30 = 230. Dividends received are investing (excluded), and dividends paid are financing. Hence 230, which is option B, not A.

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