Question

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $5.7 million, and the 2018 balance sheet showed long-term debt of $5.9 million. The 2018 income statement showed an interest expense of $190,000. During 2018, the company had a cash flow to creditors of –$10,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2018 was $1,420,000, and that the firm reduced its net working capital investment by $79,000.

What was the firm’s 2018 operating cash flow, or OCF?

Please show step by step...

Answer 1

Cash Flows to Creditors = -$10,000
Cash Flows to Stockholder = $70,000

Cash Flows from Assets = Cash Flows to Creditors + Cash Flows to Stockholder
Cash Flows from Assets = -$10,000 + $70,000
Cash Flows from Assets = $60,000

Change in Net Working Capital = -$79,000
Net Capital Spending = $1,420,000

Cash Flows from Assets = Operating Cash Flow - Change in Net Working Capital - Net Capital Spending
$60,000 = Operating Cash Flow - (-$79,000) - $1,420,000
Operating Cash Flow = $1,401,000