Question

	2018	2017
Balance Sheet: Current Assets Current Liabilities Net Fixed Assets Long-Term Debt Common Stock Income Statement/Other: Depreciation Expense EBIT Interest Expense Taxes Net Income Dividends	$ 5,000     2,000   10,000   11,000     7,500 $ 1,000     4,000     2,000        500      1,500        600	$ 7,000     4,500     8,000     9,500     7,400

Calculate the following Cash Flow from Assets Questions:

1. Operating Cash Flow

2. Net Capital Spending

3. Changes in Net Working Capital

4. Cash Flow from Assets

5. Cash Flow to Creditors

6. Cash Flow to Stockholders

Calculate the Following Ratios:

7. Current Ratio for 2018

8. Times Interest Earned for 2018

9. Return on Assets for 2018

Answer 1

Solution:

1. Operating cash flow = EBIT + depreciation - taxes

Operating cash flow = $4000 + $1000 - $500= $4500

2. Net capital spending = Closing fixed assets + depreciation - opening fixed assets

Net capital spending = $10,000 + $1000 - $8000= $3000

3. Changes in Net working capital = Closing net working capital - Opening net working capital

Changes in Net working capital = ($5000 - $2000) - ($7000 - $4500) = $500

4. Cash flow from assets = operating cash flow - Net capital spending - changes in Net working capital

Cash flow from assets = $4500 - $3000 - $500= $1000

5. Cash flow to creditors = Interest paid - Net new borrowing

Cash flow to creditors = $2000 - ($11000 - $9500) = $500

6. Cash flow to stockholders = Dividend paid - ( Net New equity )

Cash flow to stockholders = $600 - ( $7500 - $7400) = $500

7. Current ratio ( 2018) = Current assets / Current liabilities

Current ratio ( 2018) = $5000/$2000= 2.5:1

8. Times interest earned for 2018 = EBIT / Interest

Times interest earned for 2018= $4000/$2000=2:1

9. Return on assets = Net income / Total assets

Return on assets = $1500/($5000 + $10,000) *100= 10%