The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2018 balance sheet showed long-term debt of $6.5 million. The 2018 income statement showed an interest expense of $220,000. During 2018, the company had a cash flow to creditors of $20,000 and the cash flow to stockholders for the year was $75,000. Suppose you also know that the firm’s net capital spending for 2018 was $1,480,000, and that the firm reduced its net working capital investment by $91,000. What was the firm’s 2018 operating cash flow, or OCF? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
Solution: | ||||
Operating Cash Flow | $1,484,000 | |||
Working Notes: | ||||
Cash flow from assets = Operating cash flow - Change in NWC - Net capital spending | ||||
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders | ||||
= $ 20,000 + $ 75,000 | ||||
= $ 95,000 | ||||
Cash flow from assets = Operating cash flow - Change in NWC - Net capital spending | ||||
$ 95,000 = Operating cash flow -(-$ 91,000) -$ 1,480,000 | ||||
Operating Cash Flow = $ 95,000 + $ 1,480,000 - $ 91,000 | ||||
Operating Cash Flow = $ 1,484,000 | ||||
Please feel free to ask if anything about above solution in comment section of the question. |
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