a. Using the financial statements shown below, calculate net operating working c
ID: 2739622 • Letter: A
Question
a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for the most recent year. Lan & Chen Technologies: Income Statements for Year Ending December 31 (Thousands of Dollars) 2016 2015 Sales $945,000 $900,000 Expenses excluding depreciation and amortization 812,700 774,000 EBITDA $132,300 $126,000 Depreciation and amortization 33,100 31,500 EBIT $99,200 $94,500 Interest Expense 10,470 8,600 EBT $88,730 $85,900 Taxes (40%) 35,492 34,360 Net income $53,238 $51,540 Common dividends $43,300 $41,230 Addition to retained earnings $9,938 $10,310 Lan & Chen Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2016 2015 Cash and cash equivalents $47,250 $45,000 Short-term investments 3,800 3,600 Accounts Receivable 283,500 270,000 Inventories 141,750 135,000 Total current assets $476,300 $453,600 Net fixed assets 330,750 315,000 Total assets $807,050 $768,600 Liabilities and equity Accounts payable $94,500 $90,000 Accruals 47,250 45,000 Notes payable 26,262 9,000 Total current liabilities $168,012 $144,000 Long-term debt 94,500 90,000 Total liabilities $262,512 $234,000 Common stock 444,600 444,600 Retained Earnings 99,938 90,000 Total common equity $544,538 $534,600 Total liabilities and equity $807,050 $768,600 Key Input Data Tax rate 40% Net operating working capital 2016 NOWC = Operating current assets - Operating current liabilities 2016 NOWC = - 2016 NOWC = 2015 NOWC = Operating current assets - Operating current liabilities 2015 NOWC = - 2015 NOWC = Total net operating capital 2016 TOC = NOWC + Fixed assets 2016 TOC = + 2016 TOC = 2015 TOC = NOWC + Fixed assets 2015 TOC = + 2015 TOC = Investment in total net operating capital 2016 2015 2016 Inv. In TOC = TOC - TOC 2016 Inv. In TOC = - 2016 Inv. In TOC = Net operating profit after taxes 2016 NOPAT = EBIT x ( 1 - T ) 2016 NOPAT = x 2016 NOPAT = Free cash flow 2016 FCF = NOPAT - Net investment in operating capital 2016 FCF = - 2016 FCF = Return on invested capital 2016 ROIC = NOPAT / Total net operating capital 2016 ROIC = / 2016 ROIC = a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for the most recent year. Lan & Chen Technologies: Income Statements for Year Ending December 31 (Thousands of Dollars) 2016 2015 Sales $945,000 $900,000 Expenses excluding depreciation and amortization 812,700 774,000 EBITDA $132,300 $126,000 Depreciation and amortization 33,100 31,500 EBIT $99,200 $94,500 Interest Expense 10,470 8,600 EBT $88,730 $85,900 Taxes (40%) 35,492 34,360 Net income $53,238 $51,540 Common dividends $43,300 $41,230 Addition to retained earnings $9,938 $10,310 Lan & Chen Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2016 2015 Cash and cash equivalents $47,250 $45,000 Short-term investments 3,800 3,600 Accounts Receivable 283,500 270,000 Inventories 141,750 135,000 Total current assets $476,300 $453,600 Net fixed assets 330,750 315,000 Total assets $807,050 $768,600 Liabilities and equity Accounts payable $94,500 $90,000 Accruals 47,250 45,000 Notes payable 26,262 9,000 Total current liabilities $168,012 $144,000 Long-term debt 94,500 90,000 Total liabilities $262,512 $234,000 Common stock 444,600 444,600 Retained Earnings 99,938 90,000 Total common equity $544,538 $534,600 Total liabilities and equity $807,050 $768,600 Key Input Data Tax rate 40% Net operating working capital 2016 NOWC = Operating current assets - Operating current liabilities 2016 NOWC = - 2016 NOWC = 2015 NOWC = Operating current assets - Operating current liabilities 2015 NOWC = - 2015 NOWC = Total net operating capital 2016 TOC = NOWC + Fixed assets 2016 TOC = + 2016 TOC = 2015 TOC = NOWC + Fixed assets 2015 TOC = + 2015 TOC = Investment in total net operating capital 2016 2015 2016 Inv. In TOC = TOC - TOC 2016 Inv. In TOC = - 2016 Inv. In TOC = Net operating profit after taxes 2016 NOPAT = EBIT x ( 1 - T ) 2016 NOPAT = x 2016 NOPAT = Free cash flow 2016 FCF = NOPAT - Net investment in operating capital 2016 FCF = - 2016 FCF = Return on invested capital 2016 ROIC = NOPAT / Total net operating capital 2016 ROIC = / 2016 ROIC =Explanation / Answer
Part A
Net operating working capital = operating current assets – operating current liabilities
Net operating working capital (2016) = 476,300 – 168,012
= 308,288
Net operating working capital (2015) = 453,600 – 144,000
= 309,600
Part B
Total net operating capital = Net operating working capital + Fixed assets
Total net operating capital (2016) = 308,288 + 330,750
= 639,038
Total net operating capital (2015) = 309,600+315,000
= 624,600
Part C
Investment in total net operating capital = total net operating capital 2016 - total net operating capital 2015
= 639,038 – 624,600
= 14,438
Part D
Net operating profit after taxes = EBIT x (1- t)
= 99,200x (1-0.40)
= 59,520
Part E
Free cash flow = NOPAT - Investment in total net operating capital
= 59,520 – 14,438
= 45,082
Part F
ROIC = NOPAT/ Net operating assets
= 59,520 / 639,038
= 9.31%
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