The situation
Profit is ₹18 lakh, depreciation is ₹4 lakh, receivables rise ₹9 lakh and inventory rises ₹5 lakh. Payables rise ₹2 lakh.
Your task
How much operating cash was generated in the simplified bridge?
Reveal step-by-step solution
Set up the problem
Add back ₹4 lakh noncash depreciation. Cash before working capital is ₹22 lakh.
Work through the numbers
Receivables and inventory absorb ₹14 lakh. Higher payables release ₹2 lakh. Net working capital uses ₹12 lakh.
Interpret the result
Operating cash is ₹10 lakh, about 56% of profit. Ask whether receivables growth reflects sales or slower collections.
What to remember
Check signs on changes in operating balances. Compare periods before interpreting the conversion ratio.