A company reports Net Profit After Tax of Rs. 150 crore. Its cash flow statement shows: Non-cash Depreciation & Amortization: Rs. 40 crore; Increase in Trade Receivables (Debtors): Rs. 20 crore; Decrease in Inventory: Rs. 15 crore; Decrease in Trade Payables (Creditors): Rs. 10 crore; Capital Expenditure on New Plant: Rs. 60 crore. What is the Net Cash Generated from Operating Activities?

[ A ]Rs. 115 crore

[ B ]Rs. 235 crore

[ C ]Rs. 175 crore[ CORRECT ]

[ D ]Rs. 190 crore

Takeaway

Option C is correct: Rs. 175 crore

Derivation

Using the indirect method for Cash Flow from Operating Activities (CFO): Start with Net Profit (150) + Non-cash Depreciation (40) = Rs. 190 crore (Operating Cash Flow before working capital). Working capital adjustments: (1) Increase in Debtors = Cash Outflow (-20), (2) Decrease in Inventory = Cash Inflow (+15), (3) Decrease in Payables = Cash Outflow (-10). Net working capital impact = -20 + 15 - 10 = -15 crore. CFO = Rs. 190 crore - Rs. 15 crore = Rs. 175 crore. (Capital expenditure of Rs. 60 cr is an Investing activity, not Operating). This tests CFO math. The common error is subtracting capex in operating cash flows.

Why the others fail

A — Rs. 115 crore

Rs. 115 crore mistakenly deducts capital expenditure of Rs. 60 crore, which belongs in Cash Flow from Investing Activities.

B — Rs. 235 crore

Rs. 235 crore erroneously treats increases in debtors and decreases in payables as positive cash inflows.

D — Rs. 190 crore

Rs. 190 crore reflects operating cash flow before working capital adjustments, failing to apply the net working capital drain of Rs. 15 cr.