Iggy Industries had the following operating results for 2014: Sales = $27,360; c
ID: 2785379 • Letter: I
Question
Iggy Industries had the following operating results for 2014: Sales = $27,360; cost of goods sold = $19,260; depreciation expense = $1,395; interest expense = $2,190; dividends paid = $1,560; taxes paid = $1,598. Their basic financial statements also reveal the following: At the beginning of the year, net fixed assets were $16,380, current assets were $5,760, and current liabilities were $3,240. At the end of the year, net fixed assets were $20,496, current assets were $7,116, and current liabilities were $3,780. What is their cash flow from assets for 2014? Round to the nearest dollar.
Explanation / Answer
Cash Flow from Assets = Operating Cash Flow - Capital Spending - Additions to NWC
Step 1:To calculate operating cash flow
Operating Cash Flow = EBIT + Depreciation - Taxes
Thus OCF = 6705 + 1395 - 1598 = $6,502
Step 2:To calculate capital spending
Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation
= $20,496 - $16,380 + $1,395 = $5,511
Step 3:To calculate additions in Net Working Capital
Additions to NWC = Ending NWC - Beginning NWC
Ending NWC = Ending CA - Ending CL = $7,116 - $3,780 = $3,336
Beginning NWC = Beginning CA - Beginning CL =$5,760 - $3,240 = $2,520
Additions to NWC = $3,336 - $2,520 = $816
Step 2:To calculate cash flow from Assets(from step 1 , 2 and 3)
Cash Flow from Assets = Operating Cash Flow(OCF) - Capital Spending - Additions to NWC
= $6,502 - $5,511- $816
= $175
Sales 27,360 Less: COGS 19,260 Less: Dep expense 1,395 EBIT 6,705 Less: Interest Exp 2,190 EBT 4,515 Less: Taxes 1,598 Net Income 2,917 Less: Dividends 1,560 Addition to Retained Earnings 1,357