Chris’s Outdoor Furniture, Inc., has net cash flows from operating activities fo

Question

Chris’s Outdoor Furniture, Inc., has net cash flows from operating activities for the last year of $300 million. The income statement shows that net income is $275 million and depreciation expense is $40 million. During the year, the change in inventory on the balance sheet was $30 million, change in accrued wages and taxes was $10 million, and change in accounts payable was $21 million. At the beginning of the year, the balance of accounts receivable was $40 million.

Calculate the end-of-year balance for accounts receivable. (Enter your answer in millions of dollars.)

Chris’s Outdoor Furniture, Inc., has net cash flows from operating activities for the last year of $300 million. The income statement shows that net income is $275 million and depreciation expense is $40 million. During the year, the change in inventory on the balance sheet was $30 million, change in accrued wages and taxes was $10 million, and change in accounts payable was $21 million. At the beginning of the year, the balance of accounts receivable was $40 million.

Explanation / Answer

Net Income = $275 million

Net free cash flow = $300 million

Depreciation = $40 million

Mathematically free Cash flow is calculated by using following formula:

Cash flow = Net Income + Depreciation – Change in working capital

Where,

Net income is the total income get after paying all the expenses and interest.

Depreciation is non-cash expenses.

Change in working capital is different between current year working capital and last is working capital. Working capital is calculated by current assets minus current assets.

Change in working capital is calculated below by putting value in above formula:

Change in working capital = $275 + $40 - $300

                                           = $15 million

Change in working capital is $15 million

Change in inventory = $30 million

Change in accrued expense and taxes = $10 million

Change in account payable = $21 million

Change in accrued expense and taxes and Change in account payable is part of change in current liability.

So change in current liability = $10 million + $21 million

                                               = $31 million

Now,

Change in working capital = Change in current assets – Change in current liability

Change in current assets = $15 million + $31 million

                                        = $46 million

Change in current assets = $46 million.

Change in inventory and change in account receivables are part of current assets.

Change in Current assets = Change in Inventory + Change in Account receivables

                    $46 million = $30 million + Change in Account receivables

Change in Account receivables = $46 million - $30 million

                                                  = $16 million

Change in account receivables is $16 million

Last year account receivables = $40 million

Current year account receivables = Last year receivables + Change in receivables

                                                      = $40 million + $16 million

                                                      = $56 million

Hence, Current year account receivables is $56 million.

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