Question

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

	2019		2018
Sales	$	2,970.0	$	2,700.0
Operating costs excluding depreciation and amortization		2,525.0		2,295.0
EBITDA	$	445.0	$	405.0
Depreciation and amortization		81.0		70.0
Earnings before interest and taxes (EBIT)	$	364.0	$	335.0
Interest		65.3		59.4
Earnings before taxes (EBT)	$	298.7	$	275.6
Taxes (25%)		119.5		110.2
Net income	$	179.2	$	165.4
Common dividends	$	161.3	$	132.3

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

	2019		2018
Assets
Cash and equivalents	$	35.0	$	30.0
Accounts receivable		386.0		297.0
Inventories		535.0		486.0
Total current assets	$	956.0	$	813.0
Net plant and equipment		807.0		702.0
Total assets	$	1,763.0	$	1,515.0
Liabilities and Equity
Accounts payable	$	238.0	$	216.0
Accruals		304.0		243.0
Notes payable		59.4		54.0
Total current liabilities	$	601.4	$	513.0
Long-term bonds		594.0		540.0
Total liabilities	$	1,195.4	$	1,053.0
Common stock		500.0		412.3
Retained earnings		67.6		49.7
Common equity	$	567.6	$	462.0
Total liabilities and equity	$	1,763.0	$	1,515.0

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  

   2019:  $  

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.

Answer 1

1.) Working Capital Formula is Current Assets- Current Liabilities.

Following was the Working Capital for FY 2018

Financial Year		2018	2019
Cash and equivalents	$	$   35,000,000.00	30000000
Accounts receivable		$ 386,000,000.00	297000000
Inventories		$ 535,000,000.00	486000000
Total current assets (I)	$	$ 956,002,018.00	813000000
Liabilities and Equity
Accounts payable	$	$ 238,000,000.00	216000000
Accruals		$ 304,000,000.00	243000000
Notes payable		$   59,400,000.00	54000000
Total current liabilities (II)	$	$ 601,400,000.00	513000000
Total Working Capital For FY 2018
Total Cuurent Assets I - Total Current Liabilites II		354602018	300000000

C. Large increase in 2019 dividends is due to the increase in retained earnings and the increase in free cash flow expalins the reason for large increase in 2019 dividends.