Finding operating and free cash flows Consider the following balance sheets and
ID: 2382861 • Letter: F
Question
Finding operating and free cash flows Consider the following balance sheets and
selected data from the income statement of Keith Corporation.
December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $29,500 $28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $14,800 $15,000
Total assets $23,000 $21,800
Liabilities and stockholders equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $10,000 $10,000
Retained earnings 3,400 2,800
Total stockholders equity $13,400 $12,800
Total liabilities and stockholders equity $23,000 $21,800
Keith Corporation Income Statement Data (2015)
Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate 40%
a. Calculate the firms net operating profit after taxes (NOPAT) for the year ended
December 31, 2015, using Equation 4.1.
b. Calculate the firms operating cash flow (OCF) for the year ended December 31,
2015, using Equation 4.3.
c. Calculate the firms free cash flow (FCF) for the year ended December 31, 2015,
using Equation 4.4.
d. Interpret, compare, and contrast your cash flow estimates in parts b and c.
Explanation / Answer
Cash Flow Statement for the year ending 31 Dec 2014 A) Cash Flows from Operating Activities Amount Net Profit Before Tax & Extra Ordinary Item 2333 Adjustments for: Depreciation Expenses 1600 Operating Profit before working capital changes 3933 Adjustments for Current Assets & Current Liabilties Increase in Accounts Payable (1600-1500) 100 Increase in Notes Payable (2800-2200) 600 Decrease in Accrued Expense (200-300) -100 Increase in Marketable Securities(1800-1200) -600 Increase in Accounts Receivable (2000-1800) -200 Increase in Inventory (2900-2800) -100 Prepayment Cash Genearted from Operations 3633 Interest paid 367 Taxes Paid -933 Cash before Extra Ordinary Items 3067 Extra-ordinary items 0 Net Cash from (Used in) Operations 3067 B) Cash Flows from Investing Activities Payment for Fixed Assets (29500-28100) -1400 Net Cash from Investing Activities -1400 C) Cash Flows from Financing Activities Payment of Proposed Dividend -800 Payment of Interst/ Dividend -367 Net Cash from Financing Activities -1167 Increase or Decrease in Cash 500 Cash & Equivalent in the beginning 1000 Cash & Equivalent at the end 1500
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