Net annual cash flow can be estimated by:

Clarify the components: Net sales refer to the revenue generated from sales after deducting returns, allowances, and discounts. Total cash expenses include all expenses paid in cash, such as operating expenses, salaries, and other costs.

Avoid incorrect approaches: Adding liabilities to net sales, multiplying net sales by the tax rate, or dividing net sales by total assets are not valid methods for calculating net annual cash flow. These approaches do not account for cash expenses, which are critical to the calculation.