Question

You’re considering an investment in Crew Cut Inc. I want to evaluate the firms free cash flow period from the income statement, you see the crew cut earned and EBIT 23.11 million, pay taxes of 3.89 million and is depreciation expense was 7.89 million. Crewcuts gross fixed assets increased by 10.11 million from 2007 to 2008. The firms current asset increased by 6.11 million in spontaneous current liabilities increase by 3.89 million what is Crewcuts operating cash flow, investment an operating capital and free cash flow from 2008, respectively in millions?

Answer 1

Crewcuts Operating cash flow = $27.11 million

Operating cash flow = NOPAT + Depreciation

= $ 19.22 million + $7.89 million

= $27.11 million

*NOPAT = EBIT – Taxes = $23.11 million - $3.89 million = $ 19.22 million

Crewcuts Investment in operating capital = $12.33 million

Investment in operating capital = Change in Gross fixed assets + Change Net operating working capital

= $10.11 million + ($6.11 million - $3.89 million)

= $10.11 million + $2.22 million

= $12.33 million

Crewcuts Free Cash Flow = $14.78 million

Free Cash Flow = Operating cash flow – Investment in operating capital

= $27.11 million - $12.33 million

= $14.78 million