Zig Industries had the following operating results for 2014: Sales = $27,360; co

Question

Zig Industries had the following operating results for 2014: Sales = $27,360; cost of goods sold = $19,260; depreciation expense = $1,254; interest expense = $2,190; dividends paid = $1,560; taxes paid = $1,598. Their basic financial statements also reveal the following: At the beginning of the year, net fixed assets were $16,380, current assets were $5,760, and current liabilities were $3,240. At the end of the year, net fixed assets were $19,953, current assets were $7,116, and current liabilities were $3,780. What is their cash flow from assets for 2014? Round to the nearest dollar.

Explanation / Answer

Let us arrange the data to have our income statement

Cash Flow from Assets   = Operating Cash Flow - Capital Spending - Additions to NWC

Step 1:To calculate operating cash flow

Operating Cash Flow = EBIT + Depreciation - Taxes

Thus OCF = 6846 + 1254 - 1598 = $6,502

Step 2:To calculate capital spending

Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation

= $19,953 - $16,380 + $1,254 = $4,827

Step 3:To calculate additions in Net Working Capital

Additions to NWC = Ending NWC - Beginning NWC

Ending NWC = Ending CA - Ending CL = $7,116 - $3,780 = $3,336

Beginning NWC = Beginning CA - Beginning CL =$5,760 - $3,240 = $2,520

Additions to NWC = $3,336 - $2,520 = $816

Step 2:To calculate cash flow from Assets(from step 1 , 2 and 3)

Cash Flow from Assets   = Operating Cash Flow(OCF) - Capital Spending - Additions to NWC

= $6,502 - $4,827- $816

= $859

Sales 27,360 COGS 19,260 Dep expense 1,254 EBIT 6,846 Interest Exp 2,190 Taxable income 4,656 Taxes 1,598 Net Income 3,058 Dividends 1,560 Addition to Retained Earnings 1,498

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