Question

The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $5.5 million, and the 2015 balance sheet showed long-term debt of $5.75 million. The 2015 income statement showed an interest expense of $180,000. The 2014 balance sheet showed $540,000 in the common stock account and $3.4 million in the additional paid-in surplus account. The 2015 balance sheet showed $580,000 and $3.8 million in the same two accounts, respectively. The company paid out $550,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,400,000, and that the firm reduced its net working capital investment by $75,000. What was the firm’s 2015 operating cash flow, or OCF?

Answer 1

The Operating Cash Flow of a firm depends on the Net Profit for the year.

This is reflected in the increase in Paid In Capital ( Reserves and Surpluses)

In 2015 this was 3,800,000 whereas in 2014 this was 3,400,000 indicating an increase of 400,000

Interest expenses is part of Financing Cash Flow and not part of OCF

CAsh Dividend is part of Investing Cash flow and not Operating CAsh Flow

Capital Spending is part of Investing Cash Flow and not Operating Cash Flow

Net Working Capital changes form part of OCF and a decrease in this indicates increase in OCF of 75,000

Therefore OCF increase is 475,000