Use the following financial statement information for Computron Corporation to a
ID: 2801782 • Letter: U
Question
Use the following financial statement information for Computron Corporation to answer parts (a) and (b) of this question.
1. What is the working capital requirement (WCR) for Computron Corporation in 2015 and 2016? Show your calculations.
2. What is Computron’s net operating cash flow (NOCF) for 2016? Show your calculations.
3. What is Computron’s free cash flow (FCF) for 2016? Show your calculations.
Income Statement (in millions)
2015
2016
Net Sales
$1,000
$1,200
Cost of Goods Sold
710
900
Selling, General and Administrative Expenses
140
120
Depreciation Expense
25
30
Earnings Before Interest and Tax
125
150
Net Interest Expense
20.2
21.7
Earnings Before Tax
104.8
128.3
Income Tax Expense
41.9
51.3
Earnings After Tax
$62.9
$77
Dividends
4.4
60.5
Balance Sheet (in millions)
12/31/2015
12/31/2016
Cash
$10
$12
Accounts Receivable
150
180
Inventories
200
180
Prepaid Expenses
20
23
Net Fixed Assets[1]
250
300
Total Assets
$630
$695
Short Term Debt
$71.5
$90
Accounts Payable
90
108
Accrued Expenses
60
72
Long-Term Debt
150
150
Owners’ Equity
258.5
275
Total Liabilities and Owners’ Equity
$10,250
$7,950
2015
2016
Net Sales
$1,000
$1,200
Cost of Goods Sold
710
900
Selling, General and Administrative Expenses
140
120
Depreciation Expense
25
30
Earnings Before Interest and Tax
125
150
Net Interest Expense
20.2
21.7
Earnings Before Tax
104.8
128.3
Income Tax Expense
41.9
51.3
Earnings After Tax
$62.9
$77
Dividends
4.4
60.5
Explanation / Answer
1. Working capital = current assets - current liabilities
Current assets = total assets - fixed assets
Current liabilities = short term debt + payables + accrued expenses
2016 WCR = (695 - 300) - (90 + 108 + 72) = 395 - 270 = 125
2015: WCR = (630 - 250) - (71.5 + 90 + 60) = 380 - 221.5 = 158.5
Change in working capital = 125 - 158.5 = -33.5
2. Net operating cash flow = EBIT + Depreciation – Taxes +/- Change in Working Capital
= 150 + 30 - 51.3 + 33.5 = 162.2
3. Free cash flow = Net operating cash flow - (change in net fixed assets) - depreciation
= 162.2 - (300-250) - 30 = 162.2 - 80 = 82.2
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