The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6 million, and the 2018 balance sheet showed long-term debt of $6.2 million. The 2018 income statement showed an interest expense of $205,000. During 2018, the company had a cash flow to creditors of $5,000 and the cash flow to stockholders for the year was $60,000. Suppose you also know that the firm’s net capital spending for 2018 was $1,450,000, and that the firm reduced its net working capital investment by $85,000. 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.)
Firm's 2018 operating cash flow, or OCF
Cash Flow from assets
Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders
= $5,000 + $60,000
= $65,000
Calculation of Operating Cash Flow using the Cash Flow from assets Equation
We know, Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending
$65,000 = Operating cash flow - (-$85,000) - $1,450,000
Operating cash flow = $65,000 - $85,000 + $1,450,000
Operating cash flow = $1,430,000
“Hence, the firm’s 2018 operating cash flow, or OCF will be $1,430,000”
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