You are researching Time Manufacturing and have found the following accounting s

Question

You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $98 million in current taxes and had an interest expense of $48 million.

  

  

1.

Calculate the operating cash flow. (Do not round intermediate calculations. Enter your answers in millions, for e.g., 10.2 million would be entered as 10.2. Negative amounts should be indicated by a minus sign.)

  

  

2.

Calculate the capital spending. (Do not round intermediate calculations. Enter your answers in millions, for e.g., 10.2 million would be entered as 10.2. Negative amounts should be indicated by a minus sign.)

  

  

3.

Calculate the net working capital cash flow. (Do not round intermediate calculations. Enter your answers in millions, for e.g., 10.2 million would be entered as 10.2. Negative amounts should be indicated by a minus sign.)

  

  

4.

Calculate the cash flow to creditors. (Do not round intermediate calculations. Enter your answers in millions, for e.g., 10.2 million would be entered as 10.2. Negative amounts should be indicated by a minus sign.)

  

  

5.

Calculate the cash flow to stockholders. (Do not round intermediate calculations. Enter your answers in millions, for e.g., 10.2 million would be entered as 10.2. Negative amounts should be indicated by a minus sign.)

  

You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $98 million in current taxes and had an interest expense of $48 million.

Explanation / Answer

1. Calculate the operating cash flow

Solution-

We will begin by calculating the operating cash flow. First, we need the EBIT, which can be calculated as:

EBIT = Net income + Current taxes + Deferred taxes + Interest

EBIT = $173 + 98 + 19 + 48

EBIT = $338

Now we can calculate the operating cash flow as:

2. Calculate the capital spending.

Solution-

The cash flow from assets is found in the investing activities portion of the accounting statement of cash flows, so:

3. Calculate the net working capital cash flow.

Solution-

The net working capital cash flows are all found in the operations cash flow section of the accounting statement of cash flows.

However, instead of calculating the net working capital cash flows as the change in net working capital, we must calculate each item individually. Doing so, we find:

4. Calculate the cash flow to creditors.

Solution-

Except for the interest expense and notes payable, the cash flow to creditors is found in the financing activities of the accounting statement of cash flows.

The interest expense from the income statement is given, so:

5. Calculate the cash flow to stockholders

Solution-

And we can find the cash flow to stockholders in the financing section of the accounting statement of cash flows.

The cash flow to stockholders was:

Description Amount Operating cash flow: Earnings before interest and taxes $338 Depreciation 94 Current taxes (98) Operating cash flow $334

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