a. The accounting statement of cash flows explains the change in cash during the year.
The
accounting statement of cash flows will be:
Statement of cash flows
Operations
Net income
Depreciation
Changes in other current assets
Change in accounts payable
Total cash flow from operations
Investing activities
Acquisition of fixed assets
Total cash flow from investing activities
Financing activities
Proceeds of long-term debt
Dividends
Total cash flow from financing activities
Change in cash (on balance sheet)
b. Change in NWC = NWCend – NWCbeg
= (CAend – CLend) – (CAbeg – CLbeg)
=
c. To find the cash flow generated by the firm’s assets, we need the operating cash flow, and
the capital spending. So, calculating each of these, we find:
Operating cash flow
Net income
Depreciation
Operating cash flow
Note that we can calculate OCF in this manner since there are no taxes.
Capital spending
Ending fixed assets
Beginning fixed assets
Depreciation
Capital spending
Now we can calculate the cash flow generated by the firm’s assets, which is:
Cash flow from assets
Operating cash flow
Capital spending
Change in NWC
Cash flow from assets
a. The interest expense for the company is the amount of debt times the interest rate on the debt.
So, the income statement for the company is:
Income Statement
Sales
Cost of goods sold
Selling costs
Depreciation
EBIT
Interest
Taxable income
Taxes
Net income
b. And the operating cash flow is:
OCF = EBIT + Depreciation – Taxes
OCF =
To find the OCF, we first calculate net income.
Income Statement
Sales
Costs
Other expenses
Depreciation
EBIT
Interest
Taxable income
Taxes
Net income
Dividends
Additions to RE
a. OCF = EBIT + Depreciation – Taxes
OCF =
b. CFC = Interest – Net new LTD
CFC =
Note that the net new long-term debt is negative because the company repaid part of its
long- term debt.
c. CFS = Dividends – Net new equity
CFS =
d. We know that CFA = CFC + CFS, so:
CFA =
CFA is also equal to OCF – Net capital spending – Change in NWC. We already know
OCF. Net capital spending is equal to:
Net capital spending = Increase in NFA + Depreciation
Net capital spending =
Now we can use:
CFA = OCF – Net capital spending – Change in NWC
Change in NWC =
Income Statement
Sales
COGS
A&S expenses
Depreciation
EBIT
Interest
Taxable income
Taxes (35%)
a. Net income
b. OCF = EBIT + Depreciation – Taxes
OCF =
Balance sheet as of Dec. 31, 2012
Cash Accounts payable
Accounts receivable Notes payable
Inventory Current liabilities
Current assets
Long-term debt
Net fixed assets Owners' equity
Total assets Total liab. & equity
Balance sheet as of Dec. 31, 2013
Cash Accounts payable
Accounts receivable Notes payable
Inventory Current liabilities
Current assets
Long-term debt
Net fixed assets Owners' equity
Total assets Total liab. & equity
2012 Income Statement 2013 Income Statement
Sales Sales
COGS COGS
Other expenses Other expenses
Depreciation Depreciation
EBIT EBIT
Interest Interest
EBT EBT
Taxes Taxes
Net income Net income
Dividends Dividends
Additions to RE Additions to RE