Question

Financial information for Powell Panther Corporation is shown below: Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization Earnings before interest and taxes (EBIT) Interest Earnings before taxes (EBT) Taxes (259) Net income Common dividends 2019 2018 $3,240.0 $2,700.0 2.592.0 2.295.0 $ 648.0 $ 405.0 71.0 62.0 $ 577.0 $ 343.0 213 59.4 $ 505.7 $ 283.6 2023 113.4 $ 303.4 $ 170.2 $ 273.1 $ 136.2 har 71 Millions of Dollars)

Answer 1

a.Net Operating Working Capital

Net Operating Working Cpaital= Operating current Assets -Operating Current Liabilities

Operating current Assets=Cash+Accounts Recievables+Inventories

Operating current Liabilities=Accounts Payables+Accruals

Note

I suppose we don't take Notes Payable in operating current liabilities since it's an interest bearing liability,despite being a short-term(1year below) current liability.

2018

Operating current assets=Cash and equivalents+Accounts Receivables+Inventories

=32+351+432 (in millions of dollars)$

=815 $ ( in millions of dollars)      

Operating current Liabilities=Accounts Payable+Accruals

=270+243

=513 $ (in millions of dollars)

Therefore,Net Operating Working Capital(2018)=Operating current Assets-Operating current Liabilities

=815-513

=302 (in million dollars)$

Final Answer : Net Operating Working Capital(2018)= 302,000,000$

2019

Operarting current assets(2019)= Cash and Equivalents+Accounts Receivables+Inventories

=38+421+475

=934 $ (in million dollars)

Operating current Liabilities(2019)=Accounts Payables+Accruals

=297+279

=576 $(in million dollars)

Therefore,Net Operating Working Capital(2019)=Operating current Assets-Operating current Liabilities

=934-576

=358 $ (in million dollars)

Final Answer : Net Operating Working Capital(2019)= 358,000,000$

b.Free Cash Flow(2019)

Simplified Formula for Free Cash Flow(FCF)=Cash from Operations(CFO)-Capital Expenditures(CAPEX)

Cash From Operations(CFO)=Net Income + Non-Cash Expenses - Increase in non-cash Working Capital

Net Income(2019)=303.4 $ (millions)

Non-Cash Expenses=Depreciation & Amortization expenses(2019)=71.0 $ (millions)

Increase in non-cash working capital= Non-cash working capital(2019) - Non-cash working capital(2018)

=255.2-216

=39.2 $  (in millions)

So,CFO(Cash from Operations)=303.4+71+39.2=413.6 $ (millions)

Capital Expenditures(CAPEX)=Net Plant and Equipment(2019) - Net plant and Equipment(2018) + Depreciation and amortization(2019)

=714-621+71 =164 $ (in millions)

Therefore,Free Cash Flow for 2019=Cash from Operations-Capital Expenditures

=413.6-164

=249.6 $ (in millions)

Final Answer : Free Cash Flow(2019) =249,600,000$

Notes

Calculation for non-cash working capital(2019)=Accounts Receivables+Inventories-(Accounts Payables+Accruals+Notes Payables)

=421+475-(297+279+64.8) = 255.2 $ (in millions)

Calculation for non-cash working capital(2018)=Accounts Receivables+Inventories-(Accounts Payables+Accruals+Notes Payables)

=351+432-(270+243+54) = 216 $ (in millions)

c. II (The Large increase in Net Income from 2018 to 2019 explains the large increase in 2019 dividends)