Statement 1:
NOPAT = Operating Income x (1- Tax Rate)
J&H Corp
NOPAT = 6,240,000 x (1- 40%) = 6,240,000 x (1 – 0.4) = 6,240,000 x 0.6 = $3,744,000
Industry Average
NOPAT = 7,800,000 x (1- 40%) = 6,240,000 x (1 – 0.4) = 6,240,000 x 0.6 = $4,680,000
J&H Corp’s NOPAT is $3,744,000, which is $936,000 lower than industry average of $4,680,000
Statement 2:
Net Operating Working Capital
= Current Operating Assets − Current Operating Liabilities
Net Operating Working Capital
= (Cash + Accounts Receivable + Inventories)− (Accounts Payable + Accrued Expenses)
Short term investments are not included in Current Operating Assets
Given current assets = $600,000
Of them 12% in Short term investments i.e., $72,000
Therefore Current Operating Assets = 600,000 – 72,000 = $528,000
Current Operating Liabilities = $510,000
Net Operating Working Capital = $528,000 - $510,000 = $18,000
The company is using $18,000 in net operating working capital.
Statement 3:
Net cash flow from operations = Net income + Depreciation & Amortization + Changes in Working Capital
Changes in working capital = Working capital of the year = $600,000 - $510,000
= $90,000
Net cash flow from operations = $3,369,600 + $1,560,000 + $90,000 = $5,019,600
Here Accounting profit is the total revenue minus the explicit costs
explicit costs includes operating expenses, depreciation, interest and taxes.
Therefore in this case Accounting Profit is equal to Net income = $3,369,600
J&H Corp is generating $5,019,600 in net cash flow from its operations and an accounting profit of $3,369,600
Statement 4:
Total net operating capital = Net Operating Working Capital + Non-current Operating Assets
As calculated in statement 2, Net Operating Working Capital = $18,000
Non-current Operating Assets = operating long term assets = $960,000
Total net operating capital = $18,000 + $960,000 = $978,000
The firm uses $978,000 of total net operating capital to run the business. The value is computed as the sum of J&H Corp’s net operating working capital and its Non-current Operating Assets (operating long term assets )
Income Statement For the Year Ended on December 31 J&H Corp. Industry Average Net sales $39,000,000 $48,...
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