Transcript
Below are the financial statements that you are asked to prepare. 1.
The income statement for each year will look like this: Income statement 2009 $277,855 141,641 27,854 39,983 $68,377 8,702 $59,675 11,935
2010 $338,688 178,839 36,355 45,192 $78,302 9,962 $68,340 13,668
Net income
$47,740
$54,672
Dividends Addition to retained earnings
$23,870 23,870
$27,336 27,336
Sales Cost of goods sold Selling & administrative Depreciation EBIT Interest EBT Taxes
2.
The balance sheet for each year will be: Balance sheet as of Dec. 31, 2009
Cash
$20,437
Accounts payable
Accounts receivable
14,482
Notes payable
Inventory
30,475
Cu Current liabilities
Current assets
$36,120 16,464 $52,584
$65,394
Net fixed assets
$176,400
Long-term debt Owners' equity
Total assets
$241,794
Total liab. & equity
$89,040 $100,170 $241,794
In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as: Equity = $241,794 – 89,040 – 52,854 Equity = $100,170
Balance sheet as of Dec. 31, 2010
Cash
$30,880
Accounts payable
Accounts receivable
18,785
Notes payable
Inventory
41,821
Current liabilities
Current assets
$40,908 17,976 $58,884
$91,486
Net fixed assets
$214,184
Long-term debt Owners' equity
Total assets
$305,670
Total liab. & equity
$102,480 $144,306 $305,670
The owner’s equity for 2010 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so: Equity = $100,170 + 27,336 + 16,800 Equity = $144,306 3.
Using the OCF equation: OCF = EBIT + Depreciation – Taxes The OCF for each year is: OCF2009 = $68,377 + 39,983 – 11,935 OCF2009 = $96,425 OCF2010 = $78,302 + 45,192 – 13,668 OCF2010 = $109,826
4.
To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was: Capital spending Ending net fixed assets – Beginning net fixed assets + Depreciation Net capital spending
$214,184 176,400 45,192 $ 82,976
And the change in net working capital was: Change in net working capital Ending NWC – Beginning NWC
Change in NWC
$32,602 12,810 $19,792
So, the cash flow from assets was: Cash flow from assets
Operating cash flow – Net capital spending
82,976
– Change in NWC
19,792
Cash flow from assets 5.
$109,826
$ 7,058
The cash flow to creditors was: Cash flow to creditors
Interest paid – Net new borrowing Cash flow to creditors 6.
$9,962 13,440 –$3,478
The cash flow to stockholders was: Cash flow to stockholders
Dividends paid – Net new equity raised Cash flow to stockholders
$27,336 16,800 $10,536
Answers to questions 1.
The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $19,792 in new net working capital and $82,976 in new fixed assets. The firm gave $7,058 to its stakeholders. It raised $3,478 from bondholders, and paid $10,536 to stockholders.
2.
The expansion plans may be a little risky. The company does have a positive cash flow, but a large portion of the operating cash flow is already going to capital spending. The company has had to raise capital from creditors and stockholders for its current operations. So, the expansion plans may be too aggressive at this time. On the other hand, companies do need capital to grow. Before investing or loaning the company money, you would want to know where the current capital spending is going, and why the company is spending so much in this area already.
