Finding Operating and Free Cash Flows Keith Corporation Balance Sheets December

Question

Finding Operating and Free Cash Flows

Keith Corporation Balance Sheets December 31 Assets Cash Marketable securities Accounts receivable 2015 2014 51,540 1,790 1,980 2,910 58,220 $29,470 14,650 $14,820 $23,040 $960 1,240 1,770 2.800 S6,770 S28,110 13.100 S15,010 S21,780 Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Stockholders' Equity Accounts payable Notes payable Accruals 31,640 2,840 250 54,730 54,900 59,630 $10,010 3,400 $13,410 $23,040 $1,520 2,190 330 S4,040 S4,950 S8,990 S10,010 2.780 512,790 S21,780 Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

a) Net operating profit after taxes = EBIT * (1-tax rate)

= 2700 * 60%

= $1,620

b) Operating cash flow = net income + depreciation + changes in working capital

= 1396 + 1550 - 180

= $2,766

c) Free cash flow = operating cash flow - capital expenditures

= 2766 - (29470-28110)

= $1,406

d) The free cash flow will mostly be less than the operating cash flow becuase the any capital expenditres made by the company is deducted from the operating cash flow to arrive at the free cash flow. Operating cash flow is the cash balance left afer paying for all operating expenditures.

Changes in working capital Increase in marketable securities -550 Accounts receivables -210 Increase in inventories -110 Increase in accounts payables 120 Increase in notes payables 650 Decrease in accruals -80 -180

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