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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:

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

Solutions

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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