FA Mod 6 Cash flow indirect method practice exam questions


FA Mod 6 Cash flow indirect method practice exam questions

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FA Module 6 Cash flow indirect method practice exam questions

(The attached PDF file has better formatting.)

A firm’s financial statements show the following amounts:

    Calendar Year 20XX-1    Calendar Year 20XX
Cost of goods sold     438    416
Net revenue     823    869
Depreciation expense    77    87
Net income    251    287
    December 31, 20XX-1    December 31, 20XX
Accounts receivable     183    140
Inventory
        119    182
Accounts payable     173    143


60% of the firm’s sales are on credit. The current accounts on the balance sheet are cash and marketable securities, accounts receivable, accounts payable, and inventory.

Question 6.2: Receivables turnover

What is the receivables turnover for 20XX?

Answer 6.2: (869 × 60%) / ( (183 + 140) / 2) = 3.228

(receivables turnover = credit sales / average accounts receivable)


Question 6.3: Cash received from customers

What is the cash received from customers in 20XX?

Answer 6.3: 869 – (140 – 183) = 912

(cash received from customers = net revenue – Δ(accounts receivable) )


Question 6.4: Gross profit margin

What is the gross profit margin for 20XX?

Answer 6.4: 1 – 416 / 869 = 52.13%

(gross profit margin = 1 – cost of goods sold / net revenue)


Question 6.5: Inventory turnover

What is the inventory turnover for 20XX?

Answer 6.5: 416 / ( (119 + 182) / 2) = 2.764

(inventory turnover = cost of goods sold / average inventory)


Question 6.6: Inventory bought

What is the inventory bought in 20XX?

Answer 6.6: 416 + (182 – 119) = 479

(inventory bought = cost of goods sold + Δ(inventory) )


Question 6.7: Cash paid to suppliers

What is the cash paid to suppliers in 20XX?

Answer 6.7: 479 – (143 – 173) = 509

(cash paid to suppliers = inventory bought – Δ(accounts payable) )


Question 6.8: Payables turnover

What is the payables turnover for 20XX?

Answer 6.8: 479 / ( (173 + 143) / 2) = 3.032

(payables turnover = inventory bought / average accounts payable)


Question 6.9: Operating cash flow

What is the operating cash flow for 20XX? (Assume shareholder dividends are a financing cash flow.)

Answer 6.9: 287 + (912 – 869) + (416 – 509) + 87 = 324

(operating cash flow = net income + (cash received from customers – net revenue) + (cost of goods sold – cash paid to suppliers) + depreciation expense)


Question 6.10: Retained earnings

What is the change in retained earnings during 20XX?

Answer 6.10: 287 – 58 = 229

(Δ(retained earnings) = net income – shareholder dividends)


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