Question

Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2016 2015 $8,450.0$6,500.0 5,525.0 163.0 $812.0 140.0 $672.0 268.8 $403.2 $323.0 Sales Operating costs excluding depreciation Depreciation and amortization 6,760.0 195.0 $1,495.0 182.0 $1,313.0 525.2 $787.8 $709.0 Earnings before interest and taxes Less Interest Pre-tax income Taxes (40%) Net income available to common stockholders Common dividends Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2016 2015 Assets Cash Short-term investments Accounts receivable Inventories $91.0 33.0 715.0 975.0 $2,038.0 $1,814.0 1,625.0 $3,988.0 $3,439.0 $100.0 43.0 822.0 1,073.0 Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Accruals Notes payable 1,950.0 $585.0 520.0 130.0 $1,521.0 $1,235.0 1,300.0 $3,211.0$2,535.0 784.0 120.0 $904.0 $3,988.0 $3,439.0 $702.0 650.0 169.0 Total current liabilities Long-term debt 1,690.0 Total liabilities Common stock Retained earnings 578.2 198.8 $777.0 Total common equity Total liabilities and equity

Using Rhodes Corporation's financial statements (shown above), answer the following questions.

Answer 1

Ans)

a) Operating Profit= Sales - Cost of goods sold(COGS) - Operating expenses (Operating income does not consider interest charges)

Therefore Operating Profit (for the year 2016)= $8450 - $6760 - $195= $1495

Operating Profit after tax = $1495 - 40% of $1495 = $897

b) Net Operating Working Capital= Current Operating Assets − Current Operating Liabilities

Current Operating assets= Cash + Account Receivables + Inventory

Current Operating Liabilities= Accounts Payable + Accrued Expenses

In 2015;

Current Operating assets= $91+$715+$975=$1781

Current Operating Liabilities= $585+$520= $1105

Therefore Net Operating Working Capital= $1781- $1105=$676

In 2016;

Current Operating assets=$100+$822+$1073=$1995

Current Operating Liabilities=$702+$650=$1352

Therefore Net Operating Working Capital= $1995 - $1352=$643

c)Total Net Operating Capital = Net Operating Working Capital + Non-current Operating Assets(Fixed Assets)

In 2015;

Total Net Operating Capital= $676+$1625= $2301

In 2016;

Total Net Operating Capital = $643+$1950=$2593

d)Free Cash Flow= Operating Income after tax + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure

In 2016;

Free Cash Flow= $897+$195-$62-$520=$510

*Note; As per the guidelines answering the first four subparts