Canyon Tours showed the following components of working capital last year: Begin
ID: 2366208 • Letter: C
Question
Canyon Tours showed the following components of working capital last year: Beginning End of Year Accounts receivable $27,800 $24,900 Inventory 13,900 16,300 Accounts payable 16,400 20,300 -------------------------------------------------------------------------------- a. What was the change in net working capital during the year? (Negative amount should be indicated by a minus sign.) Change in net working capital $ b. If sales were $37,900 and costs were $25,900, what was cash flow for the year? Ignore taxes. Cash flow $Explanation / Answer
Change in net working capital is found like this: Net Working Capital = Accounts Receivable + Inventory - Accounts Payable We do this for each year then take the difference to find the change NWC(1) = 24,900 + 16,300 - 20,300 = 20,900 NWC (2) = 27,800 + 13,900 - 16,400 = 25,300 The difference is $4400 To find cash flow we must find Net Income = Sales - costs and adjust for net working capital Sales - costs = 37,900 - 25,900 = 12000 then we must adjust for the fact we used 4400 of cash to INCREASE our Net Working Capital. Thus our cash flow was 12000 - 4400 = $7600