From the start of Year 2 to the end of Year 2, what is the net change in Cash Flow from Operations (CFO)?

From the start of Year 2 to the end of Year 2, what is the net change in Cash Flow from Operations (CFO)?

• A. Down by $70
• B. Up by $30
• C. Up by $70
• D. Unchanged

Answer: (B)

Cash Flow from Operations shows the cash generated by the business’s core activities. To find the net change from the start to the end of Year 2, you compare CFO at the end of Year 2 with CFO at the start of Year 2. Using the indirect method, CFO starts with net income, adds back non-cash expenses, and then adjusts for changes in working capital (current assets and current liabilities). A net increase in CFO from the beginning to the end of Year 2 means the combined effect of these adjustments was positive, indicating the company generated more cash from operations in Year 2 than it did at the start of the year. In this scenario, those adjustments add up to an overall rise of 30, so the net change in CFO is an increase of 30. This reflects factors such as higher operating cash inflows and/or more favorable working capital movements during Year 2.

Cash Flow from Operations shows the cash generated by the business’s core activities. To find the net change from the start to the end of Year 2, you compare CFO at the end of Year 2 with CFO at the start of Year 2. Using the indirect method, CFO starts with net income, adds back non-cash expenses, and then adjusts for changes in working capital (current assets and current liabilities). A net increase in CFO from the beginning to the end of Year 2 means the combined effect of these adjustments was positive, indicating the company generated more cash from operations in Year 2 than it did at the start of the year. In this scenario, those adjustments add up to an overall rise of 30, so the net change in CFO is an increase of 30. This reflects factors such as higher operating cash inflows and/or more favorable working capital movements during Year 2.