For the Operating Cash Flow, I need to follow this equation - OFC = NOPAT + Depr
ID: 2810330 • Letter: F
Question
For the Operating Cash Flow, I need to follow this equation - OFC = NOPAT + Depreciation. The formula for NOPAT I followed was EBIT x (1-T) T= Corporate tax rate. I would like to see what you get for this question A - C to check against my math to see if I did it correctly. Thank you so much!
57 Chapt er 2 | Financial Statement and Cash Flow Analysis Analysis of SMG Industries that follow, the balance sheets and selected data from the income statement answer parts (a)-(c). a. Calculate the firm's operating cash flow (OCF) for the year ended December 3 , 2012,using Equation 2.2 31, 2012, using Equation 2.4. b. Calculate the firm's free cash flow (FCF) for the year ended December 31, 2012, using Equation 2 TThanee cInterpret, compare, and contrast your cash flow estimates in parts (a) and (b). SMG Industries Balance Sheets ($ in millions) Liabilities and December December December December Assets 31, 2012 3, 2011Stockholders' Equity 31, 2012 3, 2011 3,500 3,600 4,800 3,500 3,800 4,000 3,000 Accounts payable 3,200 Accruals 3,800 Long-term debt Cash Marketable 4,200 1.200 1.300 Total current liabilities 9,600 $9,000 6,000 $11,000 $11,000 Notes payable Accounts receivable $ 6,000 4,900 4800 Common stock 6400 5800 $16,800 stockholders' equity $33.000 $31,800 Total current Retained eanings 5,800 assets Gross fixed assets $16200 $4800 Total stockholders $31,500 $30,100 Total liabilities and $17400 16800 Less: Accumulated depreciation 14700 13100 Net fixed assets $16800 $17000 Total assets $33000 $31,800 Income Statement Data (2012, $ in millions) Depreciation expense Earnings before interest and taxes (EBIT) Taxes $1,600 4,500 1,300 2,400 Net profits after taxesExplanation / Answer
A: OCF can be computed as NOPAT + Depreciation
= Profit after tax + depreciation
= 2400+1600
=$4000
B: FCF = OCF- Capital expenditure
= OCF- (Closing fixed assets- opening fixed assets)
= 4000- (31500-30100)
= $2600
C: While the Operating cash flow is the cash generated from operations, the FCF represents the free cash flow available to the business for expansion/functioning purposes. In this case the OCF is $4000 which is generated from the operations. However of this, $1400 is used for capital expenses in fixed assets. So the free cash available to the business is $2600.