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NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis

Tara Foods reports the following for a year (Rs crore): net profit 120; depreciation 30; increase in trade receivables 20; decrease in inventories 10; increase in trade payables 15; profit on sale of an asset 5 (included in net profit). Using the indirect method, cash flow from operating activities is:

Operating cash flow is Rs 150 crore. Begin with net profit of 120, add depreciation of 30, subtract the 5 gain on sale, subtract the 20 rise in receivables, add the 10 fall in inventories and add the 15 rise in payables. The gain is an investing item, so it is removed.

  1. A150Correct
  2. B160
  3. C145
  4. D155

Explanation

Start with 120. Add depreciation 30 = 150. Deduct the gain on asset sale 5 = 145. Receivables increase -20 = 125. Inventory decrease +10 = 135. Payables increase +15 = 150. Ignoring the gain adjustment would give 155. Treating the inventory decrease as an outflow would give 130.

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