Question

The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $5.9 million, and the 2015 balance sheet showed long-term debt of $6.15 million. The 2015 income statement showed an interest expense of $200,000. The 2014 balance sheet showed $580,000 in the common stock account and $3.5 million in the additional paid-in surplus account. The 2015 balance sheet showed $620,000 and $3.9 million in the same two accounts, respectively. The company paid out $570,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,440,000, and that the firm reduced its net working capital investment by $83,000. What was the firm’s 2015 operating cash flow, or OCF?

Answer 1

Solution:

Cash Flow to creditors = Interest Paid - (changes in long term debt)

Cash flow to creditors = $ 200,000- ($61,50,000 - $59,00,000)

Cash flow to creditors = $200,000- $250,000

Cash Flow to Creditors = -$50,000

Cash Flow to Stockholders = Dividend Paid - (Changes in equity)

Cash Flow to Stockholders= $570,000- ($620,000+$39,00,000- $580,000-$35,00,000)

Cash Flow to Stockholders= $570,000- $440,000

Cash Flow to Stockholders= $130,000

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders

Cash Flow from Assets = -$50,000+$130,000

Cash Flow from Assets = $80,000

Operating Cash Flow (OCF) = Cashflow from Assets + Capital Spending + Changes in Net Working Capital

Operating Cash Flow = $80,000 + $14,40,000 - $83,000

Operating Cash Flow = $14,37,000