Garret Company provided the following information for the year ended December 31, 2016: - Cash collected from customers: $790,000. - Cash received from stockholders for common stock: $90,000. - Cash paid to suppliers: $380,000. - Cash paid to employees: $220,000. - Cash paid to stockholders for dividends: $54,000. - Cash received from sale of a building: $300,000. - Cash paid for store rent: $40,000. - Cash received for interest and dividends: $6,000. - Cash paid for income taxes: $45,000. Based on this information, we need to determine Garret's cash flow from operating activities.
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To determine Garret Company's cash flow from operating activities, we need to calculate the net cash provided by operating activities. This can be found by starting with the cash collected from customers and adjusting for various cash inflows and outflows related to the company's normal operations.
Step 1: Start with the cash collected from customers: $790,000.
Step 2: Subtract the cash paid to suppliers: $380,000. This represents the cash outflow for purchasing goods or services from suppliers.
Step 3: Subtract the cash paid to employees: $220,000. This represents the cash outflow for salaries and wages.
Step 4: Add back the cash received for interest and dividends: $6,000. This represents the cash inflow from interest earned on investments and dividends received from other companies.
Step 5: Subtract the cash paid for income taxes: $45,000. This represents the cash outflow for taxes paid to the government.
Step 6: The final result is the net cash provided by operating activities, which is the cash flow generated from Garret Company's normal business operations.
To calculate Garret's cash flow from operating activities, we can follow these steps:
Net cash from operating activities = Cash collected from customers - Cash paid to suppliers - Cash paid to employees + Cash received for interest and dividends - Cash paid for income taxes
= $790,000 - $380,000 - $220,000 + $6,000 - $45,000
= $151,000
Therefore, Garret Company's cash flow from operating activities for the year ended December 31, 2016, is $151,000.
Cash flow from operating activities is an important measure of a company's ability to generate cash from its normal business operations. It shows how much cash is generated or used by the company's core activities, such as sales, purchasing, and payroll. Positive cash flow from operating activities indicates that the company is able to generate enough cash to cover its operating expenses and potentially invest in growth opportunities. Negative cash flow from operating activities may indicate that the company is not generating enough cash from its core operations and may need to rely on other sources of funding or make adjustments to improve its financial performance.