Question

164.0 Free Cash Flows Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2016 2015 Sales $9,350.0 $8,500.0 Operating costs excluding depreciation 7,013.0 7,225.0 Depreciation and amortization 196.0 179.0 Earnings before interest and taxes $2,141.0 $1,096.0 Less Interest 201.0 183.0 Pre-tax income $1,940.0 $913.0 Taxes (40%) 776.0 365.2 Net income available to common stockholders $1,164.0 $547.8 Common dividends $1,048.0 $438.0 Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2016 2015 Assets Cash $113.0 $94.0 Short-term investments 47.0 43.0 Accounts receivable 1,326.0 1,020.0 Inventories 1,658.0 1,275.0 Total current assets $3,144.0 $2,432.0 Net plant and equipment 1,964.0 1,785.0 Total assets $5,108.0 $4,217.0 Liabilities and Equity Accounts payable $561.0 $510.0 Accruals 774.0 595.0 Notes payable 187.0 170.0 Total current liabilities $1,522.0 $1,275.0 Long-term debt 1,870.0 1,700.0 Total liabilities $3,392.0 $2,975.0 Common stock 1,435.0 1,077.0 Retained earnings 281.0 165.0 Total common equity $1,716.0 $1,242.0 Total liabilities and equity $5,108.0 $4,217.0 Using Rhodes Corporation's financial statements (shown above), answer the following questions.

Answer 1

RHODES CORPORATION:

1) NOPAT (net operating profit after tax) - 2016:

= EBIT (1 - tax rate)

= 2141 x (1 - 0.4) = $1284.6 million.

2) NET OPERATING WORKING CAPITAL:

= operating current assets - operating current liabs.

= cash + acc. receivables + inventory - (account payables + accrued expenses)

	2016	2015
Operating Current Assets	3,097	2,389
Operating Current Liabs.	1,335	1,105
NET OPERATING WC	1,762	1,284

3) NET OPERATING CAPITAL:

= Net Operating Working Capital + Non-current Operating Assets

PARTICULARS	2016	2015
Operating Current Assets	3,097	2,389
Operating Current Liabs.	1,335	1,105
NET OPERATING WC (A)	1,762	1,284
Net PPE	1,964	1,785
NON-CURRENT OPERATING ASSETS (B)	1,964	1,785
NET OPERATING CAPITAL (A+B)	3,726	3,069

4) FREE CASH FLOW (2016):

= Operating Cash Flow − Capital Expenditures

= Net income + non-cash expenses - increase in WC - Capital expenditures

= 1164 + 196 + 638 + 375

= $2,373 milion.

5) ROIC (return on invested capital) - 2016:

= Net operating profit after tax / invested capital x 100

= 1284.6 x 100 / (1870 + 1716)

= (1284.6 x 100) / 3586

= 35.8%

ROSNAN INDUSTRIES:

1) NET OPERATING WORKING CAPITAL:

= operating current assets - operating current liabs.

= cash + acc. receivables + inventory - (account payables + accrued expenses)

= 720 - 225

= $495 million.

2) NET WORKING CAPITAL:

= Total current assets - total current liabs.

= 720 - 345

= $375 million.