# CMA Part-One Mini-Lesson: How did We Calculate the Cash Flow from Operating Activities (CFO)? ### Student Question

“Hello Nathan,

For the below, I’m confused how was the CFO calculated to be 700,000? There’s a step in the calculation that I’m missing??”

### MCQ

SUL Company’s cash balance increased by \$400,000 during the current period. In examining the statement of cash flow, you see that the net cash flow from investing was (\$2.3 million) and the net cash flow from financing was \$2 million. Further investigation reveals that the firm has fixed charges of \$600,000, interest expenses of \$525,000, and taxes of \$120,000.

What is the cash flow to fixed charges ratio?

A. 2.37

C. 4

D. 2.5

### 1-on-1 CMA Coaching Support

LOS: Identify the major components and classifications of each statement.

Net Cash Flow = Cash Flow from Operations + Cash Flow from Investing + Cash Flow from Financing.

Here’s the formula:

 Cash flow from Operating Activities xxx Cash flow from Investing Activities xxx Cash flow from Financing Activities xxx Increase (Decrease) in Cash xxx

If we squeeze the formula above, we will arrive at the CFO of:

 Increase (Decrease) in Cash 400,000 Less: Cash flow from Financing Activities (2,000,000) Deducted – net cash inflow Less: Cash flow from Investing Activities 2,300,000 Added – net cash outflow Cash flow from Operating Activities (CFO) 700,000

Therefore, the Cash Flow to Fixed Charges ratio will be:

Cash Flow to Fixed Charges = (Operating Cash Flow + Fixed Charges + Tax Payments)
Cash Flow to Fixed Charges = (\$700,000 + \$600,000 + \$120,000) / \$600,000
Cash Flow to Fixed Charges = \$1,420,000 / \$600,000
Cash Flow to Fixed Charges = 2.37 