Calculate free cash flow for 2014 for Monarch Textiles, Inc., based on the finan

Question

Calculate free cash flow for 2014 for Monarch Textiles, Inc., based on the financial information below. Assume that all current liabilities are non-interest-bearing liabilities and that no fixed assets were sold or disposed of during 2014. Monarch Textiles, Inc. ($ thousands) Income statement Selected balance sheet items 2014 2013 2014 300 400 100 200 Sales Cost of sales Operating expenses Depreciation Interest expense Earnings before taxes Tax Net income 1,100 700 100 50 50 200 80 120 Current assets Net fixed assets Current liabilities 200 280

Explanation / Answer

Free Cash Flow(FCF) = EBIT (1-tax rate) + (depreciation) + (amortization) - (change in net working capital) - (capital expenditure).

EBIT = EBT+IE = 200+50 = 250

Tax Rate = Taxes/income = 80/200 = 0.4

Depreciation = 50

Amortization - N/A

Change in net working capital = Current Assets - Current Liabilities = 400-280 = 120

Capital Expenditure = Change in net fixed assets+Depreciation = 200-100+50 = 150

Free Cash Flow(FCF) = 250*(1-0.4)+50-120-150 = -70

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