Question

Practice Questions The Azusa Better, Inc. has compiled the following information:

Begin End

Sales $3,813 $4,019

Long-term debt 1,555 899

Interest paid 121 143

Common stock 1,500 2,150

Accounts receivable 498 402

Depreciation 306 393

Cash 413 911

Inventory 1,516 1,533

Accounts payable 387 460

Retained earnings 1,700 1,550

Cost of goods sold 2,123 2,609

Net fixed assets 2,715 2,213

Other costs 391 514

Taxes paid 305 126

For End year, find the cash flow from assets, the cash flow to creditors and to stockholders.

Operating cash flow =

Change in net working capital =

Net capital spending =

Cash flow from assets =

Cash flow to creditors =

Addition to retained earnings =

Net income =

Dividends paid =

Cash flow to stockholders =

Cash flow from assets =

Answer 1

Ans. Part a. Operating Cashflow : EBIT+Non Cash Expenses- Tax

Operating cashflow is the primiary amount of money the company generates.

In this case the Net Income would be required to be calculated

Net Income= Gross Income-Direct Expenses - Operating Expenses- Interest-Tax

Sales	4019
COGS	-2609
Depriciation	-393
Other Cost	-514
EBIT	503

The Cashflow from operating activity is = 503+393-126=770

Part b. Change in net working capital is as follows (Net Asset - Net Liability)

	Year	Begin	End
	Account Receivable	498	402
	Cash	413	911
Asset	Inventory	1516	1533
	Total Current Asset	2427	2846
Liability	Account Payable	387	460
	Total Current Liability	387	460
	Working Capital	2040	2386
	Change in working capital	-346

Part c. Net Capital Spending= Ending Net Fix Asset-Begining Net Fix Asset+ Depriciation

Fix asset at begining = 2715

Fix asset at begining= 2213

Depriciation = 393

Net Capital Spending= 2715-2213+393=895

Part d Cashflow from assets is the cashflow generted by the firm.

It comprisis of Cashflow from operation+Net working capital+Net capital spending.

Based on the above calculations the cashflow from operation is 770

The net working capital =-346

Net Capital Spending = 895

The Cashflow from assets = 770+895-346=1319

Part e. Cashflow to creditors = Interest Expense- (Ending Long term debt- Begining Long Term Debt)

Interest expense at the end of the year= 143

Long term debt at the begining of the year= 1,555

Long term debt at the end of the year= 899

143-(899-1555)= 799

Part f. Addition to retain earnigs is Net income is 234 which is the net income for the year.

Sales	4019
COGS	-2609
Depreciation	-393
Other Cost	-514
EBIT	503
Interest	-143
Tax	-126
NI	234

Previous year retained earning+ Net Income-Dividend 1700+234-384=1550

Part g. Net Income for both the years is as follows

Year	Beginning	End
Sales	3813	4019
COGS	-2123	-2609
Depreciation	-306	-393
Other Cost	-391	-514
EBIT	993	503
Interest	-121	-143
Tax	-305	-126
NI	567	234

Part h Dividend paid= Previous year retained earning+ NI/Net loss - curent year retained earning

1700+234 - 1550= 384

Part i. Cashflow to stock holders: Cashflow to debt holder + cashflow to equity holder.

Cashflow to equity holder : Dividend Paid - (Ending common stock-Begining common stock)-(Ending capital sruplus-begining capital surplus)+(ending treasury stock- begining treasury stock)

Dividend paid = 384

Net common stock (2150-1500) =650

Cash surplus= 0

Treasury stock =0

Cashflow to equity = 384+650=1034

Cashflow to debt: Interest paid-(Ending long term debt+begining long term debt)

As cacluated above it is 799

1034+799=1833.

Cashflow to assets is arleady calculated above. Operating cashflow+Net Working capital+net capital spending .

Based on the above calculations the cashflow from operation is 770

The net working capital =-346

Net Capital Spending = 895

The Cashflow from assets = 770+895-346=1319