Question

The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $5.8 million, and the 2015 balance sheet showed long-term debt of $6.05 million. The 2015 income statement showed an interest expense of $195,000. The 2014 balance sheet showed $570,000 in the common stock account and $2.4 million in the additional paid-in surplus account. The 2015 balance sheet showed $610,000 and $2.8 million in the same two accounts, respectively. The company paid out $565,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,430,000, and that the firm reduced its net working capital investment by $81,000.

What was the firm’s 2015 operating cash flow, or OCF? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Operating cash flow

$

Answer 1

Cash Flow to Creditors

Cash Flow to Creditors = Interest Expenses Paid – Net Increase in Long term debt

= Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]

= $195,000 – [$60,50,000 - $58,00,000]

= $195,000 - $50,000

= -$55,000

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid – Net New Equity

= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

= $565,000 – [($610,000 + $28,00,000) – ($570,000 + $24,00,000)]

= $565,000 – [$34,10,000 - $29,70,000]

= $565,000 - $440,000

= $125,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$55,000 + $125,000

= $70,000

Operating Cash Flow  

Operating Cash Flow using the Cash Flow from assets Equation

We know, Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending

$70,000 = Operating cash flow – (-$81,000) - $14,30,000

Operating cash flow = $70,000 - $81,000 + $14,30,000

Operating cash flow = $1,419,000

“Therefore, the firm's 2015 operating cash flow, or OCF would be -$1,419,000”