Effect of Decrease in Current assets in operating activities of Cash Row is
Answers
Explanation:
Operating cash flow is the cash flow generated from the regular activities of a business. Operating cash flow starts with net income from the income statement, adds back in cash, and then incorporates any changes (adding or subtracting) in working capital.
To create a strategy that avoids declines in cash from operations, businesses should focus on maximizing net income and optimizing efficiency ratios.
The following factors will all decrease cash flow from operating activities:
1. Decrease in Net Income
The cash flow statement begins with net income, which is equal to revenues minus all costs, including taxes. As operating cash flow beings with net income, any changes in net income would affect cash flow from operating activities. If revenues decline or costs increase, with the resulting factor of a decrease in net income, this will result in a decrease in cash flow from operating activities.
2. Changes in Working Capital
The most significant uses of cash from operating activities are the changes in working capital, which includes current assets and current liabilities. Increases and decreases in current assets and liabilities are reflected in the cash flow statement. Growth in assets or decreases in liabilities from one period to another constitutes a use of cash and reduces cash flows from operations.