Question

Z - Flooring Inc. shows the following information on its 2018 financial statements: Sales =$150,000; COGS=$78,500; other operating expenses=$4,500; depreciation expenses=$10,100; interest expenses=$7,900; tax rate is 25%; dividends=$5,400. In addition, you are told that the firm issued $3,200 in new equity throughout the year, and redeemed $3,000 in outstanding long term debt. It also executed $4,000 stock buy back.

(Step by Step) What is Z – Flooring Inc’s 2018 operating cash flow, cash flow to stock holders, and cash flow to creditors?

Answer 1

Calculation of operating cash flow:

First we will calculate the net income as below:

Sales $150000

Less: COGS ($78500)

Less: Other operating expenses ($4500)

Less; Depreciation expense ($10100)

Less: Interest expenses ($7900)

Earnings before tax $49000

Taxes @25% ($12250)

Net income $36750

Now, we will add back the non cash item of depreciation in net income to find the operating cash flow as per below:

Operating cash flow = Net income + depreciation expense

Operating cash flow = $36750 + $10100 = $46850

Calculation of cash flow to stockholders:

Payment for new stock issued ($3200)

Proceeds from stock buyback $4000

Dividends received $5400

Cash flow to stockholders $6200

Calculation of cash flow to creditors:

Proceeds from long term debt redeemed $3000

Add: Interest received $7900

Cash flow to creditors $10900