Question

Joe’s trading company has the following projected financial results for 2018:

•           $4,200,000 sales

            $3,000,000 cost of goods sold

•           $600,000 capital (fixed asset) expenditures

•           $300,000 owner’s equity

•           $200,000 depreciation (same for tax and book purposes)

•           $50,000 increase in inventory

•           $40,000 decrease in accounts receivable

•           $60,000 increase in accounts payable

•           $500,000 overhead expenses (excluding Depreciation)

•           $ 80,000 interest expense

•           35% effective tax rate.

Please calculate the following

1. Joe’s cash flow:
2. Joe’s net income for 2013:
3. Gross Margin %:
4. Profit Margin %:

Answer 1

b.c.d:

Particular		$           2,018
Net sales	s	$    4,200,000
Cost of goods sold	C	$   -3,000,000
Gross profit	G= S-C	$    1,200,000
Operating expense:
overhead exp	SA	$      -500,000
Depreciation		$      -200,000
Operating income, EBIT	OI= G-SA-D	$       500,000
interest expense		$        -80,000
Earning before tax	TI	$       420,000
income tax	35.00%	$      -147,000
NET profit after tax	NP= TI-IT	$       273,000
gross margin	Gross profit*100/Sales	=1200000/4200000 *100= 28.57%
Profit margin	NP*100/sales	273000/4200000 *100= 6.50%

a.

Particulars		2018
Cash flow from operating activity
net income		$             273,000
Add: Depreciation		$             200,000
Add:Cash flow from working capital:
Decrease in debtors		$               40,000
Increase in inventory		$             -50,000
Increase in Account payable		$               60,000
Net cash flow from Operating Activity	sum total A	$             523,000
Cash flow from investing activity
capital expenditure		$           -600,000
Net cash flow from investing Activity	sum total B	$           -600,000
Cash Flow from Financial Activity
cash receipt from equity issue		$                        -
(as it is not mentioned that additional equity is raised, we assume that it was the previous years equity, but if we take it as a additional equity then the cash flow will increase by $300,000)
Net cash flow from financing Activity	Sub total C	$                        -
Total cash flow	D=A+B+C	$             -77,000
Plus: cash + cash equivalents balance at the beginning	E	$                        -
Cash balance at the end of the year	D+E	$             -77,000

increase in current asset leads to decrease in cash flow and vice versa

similarly, increase in current liability leads to increase and cash balance and vice versa.