Question

Pizza International, Inc., reported the following information (in thousands):

Operating Activities
Net Income	$	115
Depreciation		33,380
Increase in receivables		185
Decrease in inventory		673
Increase in prepaid expenses		679
Decrease in accounts payable		8,735
Increase in accrued liabilities		734
Decrease in income taxes payable		2,751
Payments on notes payable		12,706
Cash paid for equipment		29,088

Required:

1. Based on this information, compute cash flow from operating activities using the indirect method.
2. What was the primary reason that Pizza International was able to report large positive cash flow from operations despite nearly having a net loss?

Answer 1

a.

Cash flow from operating activities

Operating Activities :
Net Income	115
Depreciation	33,380
Increase in receivables	-185
Decrease in inventory	673
Increase in prepaid expenses	-679
Decrease in accounts payable	-8,735
Increase in accrued liabilities	734
Decrease in income taxes payable	-2,751
Net cash provided by operating activities	$22,552

b.

Presence of huge depreciation expense was the  primary reason that Pizza International was able to report large positive cash flow from operations despite nearly having a net loss

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