General Therapeutics Co.’s Revenue in 2018 was $55,000 while its cost of goods sold was $42,000;...

General Therapeutics Co.’s Revenue in 2018 was $55,000 while its cost of goods sold was $42,000; the company paid $600 in interest while value for depreciation was $6,000.

Also, for 2018 net fixed assets were $25,000 while its current assets were $8,000 and current liabilities were $5,000.

These are the values for 2017: net fixed assets = $19,500, current assets = $6,800 and current liabilities = $4,500. The tax rate is 35%.

Required:

What is net income for 2018?
What is the operating cash flow for 2018?
What is the cash flow from assets for 2018? How do you interpret this result?
What is the cash flow to shareholders?

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Expert Solution

Net Income for 2018

Revenue	55000
Less: cost of goods sold	42000
Gross Profit	13000
Less: Depreciation	6000
EBIT	7000
Less: Finance cost	600
Earning before tax	6400
Tax @ 35%	2240
Net income	$4160

Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital

Change in working capital

less: Increase in current asset= -1200

Add: Increase in current liabilities=500

Net change in working capital= -700

=7000+6000-2240-700

=$10060

	Cash flow from assets
	Operating cash flow	10060
Less	Net capital spending	-5500
Less	Change in working capital	700

= $5260

cash flow from assets represent aggregate of cash flows towards assets . It implies net amount of assets being used in operations.

Cash flow to shareholders comprises of dividend payment. In question dividends payment amount is not given . If we assume no retained earnings. All the earnings after tax are attributable to shareholders, then cash flow to shareholders will be $4160

jeff jeffy answered 1 year ago

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