Question

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2018 balance sheet showed long-term debt of $2.9 million. The 2018 income statement showed an interest expense of $140,000. During 2018, the company had a cash flow to creditors of –$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2018 was $1,320,000, and that the firm reduced its net working capital investment by $59,000. 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.)

Answer 1

Firm's 2018 operating cash flow, or OCF

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$60,000 + $70,000

= $10,000

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

$10,000 = Operating cash flow – (-$59,000) - $1,320,000

Operating cash flow = $10,000 - $59,000 + $1,320,000

Operating cash flow = $1,271,000

“Hence, the firm’s 2018 operating cash flow, or OCF will be $1,271,000”