Explain how Barnett Ltd has made an operating profit

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Question - Barnett Ltd. made an operating profit of £27,174 in the year ended 31st December 2016. However, it generated an operating cash outflow of £219,380. The reconciliation of operating profit to net cash flow from operating activities is outlined below:

Reconciliation of operating profit to net cash outflow from operating activities:

Operating profit

27,174

Depreciation charges

199,932

Profit on sale of non-current assets

(166)

Decrease in inventories

43,538

Increase in trade receivables

(324,444)

Decrease in trade payables

(165,414)

Net cash outflow from operating activities

(219,380)

Required -

(a) Using the figures provided, explain how Barnett Ltd. has made an operating profit yet has suffered a significant negative operating cash flow.

(b) Evaluate the significance of the cash flow statement when making credit decisions.

(c) What are cash flows from investing activities and how do they differ from cash flows from financing activities? You are required to give 3 examples of items that will appear under these sections of the cash flow statement.

Reference no: EM132856020

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