Question

Consider the following abbreviated financial statements for Parrothead Enterprises:

PARROTHEAD ENTERPRISES								PARROTHEAD ENTERPRISES
2014 and 2015 Partial Balance Sheets								2015 Income Statement
Assets				Liabilities & Owners’ Equity				Sales	12327
	2015	2014			2015	2014		Costs	5947
Current assets	966	939		Current liabilities	319	485		Depreciation	1051
Net fixed assets	3790	4263		Long-term debt	2065	2114		Interest	105

If the tax rate is 34 percent, what is the cash flow from assets for the year?

Answer 1

first let us know the operating cash flows:

sales	12,327
less:costs	(5947)
depreciation	(1051)
EBIT	5329
less:interest	(105)
EBT	5224
less:tax @34%	(1776.16)
net income	3447.84

operating cash flow = EBIT +depreciation - taxes

=>5329 + 1051-1776.16

=>$4,603.84.

now let us know the change in net working capital:

	2014	2015	change
current assets	939	966
current liabilities	(485)	(319)
net working capital	454	647	193

now

let us know the net capital spending:

fixed assets 2015 - fixed assets 2014 + depreciation

=>3790 - 4263+1051

=>578.

now

cash flow from assets

=>operating cash flow - change in net working capital - net capital spending

=>4603.84-193-578

=>$3,832.84.