Question

The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $2.9 million, and the 2015 balance sheet showed long-term debt of $3.15 million. The 2015 income statement showed an interest expense of $145,000. The 2014 balance sheet showed $470,000 in the common stock account and $4.5 million in the additional paid-in surplus account. The 2015 balance sheet showed $510,000 and $4.8 million in the same two accounts, respectively. The company paid out $510,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,330,000, and that the firm reduced its net working capital investment by $61,000.

What was the firm’s 2015 operating cash flow, or OCF?

Thank you for your help.

Answer 1

Cash Flow to Creditor =Interest Paid -(Net New Borrowing

=145000-(3150000-2900000)

=-105000

Cash flow to stockholders = Dividends paid – Net new equity

Cash flow to stockholders = Dividends paid – [(Common_end + APIS_end) – (Common_beg + APIS_beg)]

=510000-((510000+4800000)-(470000+4500000))

=170000

Cash flow from asset =Cash Flow to Creditor+Cash flow to stockholders=

=-105000+170000

=65000

Cash flow from asset =OCF -Change in NWC -Net Capital Spending

=65000=OCF -(-61000)-1330000

OCF =65000-61000+1330000=1334000