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Please use the following balance sheets and income statements to solve this problem (all numbers in...

Please use the following balance sheets and income statements to solve this problem (all numbers in Million USD)

Ariba Company

2018

2017

Net Sales and Revenues

2018

2017

Cash and cash equivalents

$3,000.

$ 3,000.

Net Sales

26,000.

28,000.

Marketable securities

$ 350.

$ 230.

Cost of sales

18,000.

20,000.

Account receivables

$25,000

$28,000.

Research and dev expenses

1,000.

1,000.

Other receivables

$1,000.

$ 900.

Selling expenses

2,000.

2,000.

Inventories

$ 3,000.

$ 3,000.0

Interest expense

760.

680.

Prepaid expenses

$ 5,000.

$ 4,000.

Non-operating expenses

1000.

960.

Property & equipment - net

$11,000.

$10,000.

Total

24,000

26,000.

Goodwill

$ 800.7

$ 700.0

Income before Income Taxes

2,000.

2,000.

Intangible assets - net

$ 4,000.1

$ 4,000.

Provision for income taxes

700.

800.

Total Assets

$57,000.

$57,000.

Income of Consolidated Group

1,000.

1,00.

LIABILITIES

Short-term borrowings

$6,000.2

$ 8,000.

Account payables

$5,000.1

$ 4,000.

Accrued expenses

7,000.1

$ 7,000.

Deferred revenues

$ 160.0

$ 160

Long-term borrowings

$21,000.

$23,000.

Other liabilities

$ 8,000.5

$ 6,000.

Total liabilities

$50,000.

$51,000.

STOCKHOLDERS' EQUITY

Common stock

$2,000.

$ 2,000

Treasury stock

(15,000.)

(15,000.)

Retained earnings

$23,000.

$23,000.

Comprehensive income/loss

(5,000.0)

(4,000)

Total stockholders' equity

$ 6,000

$ 6,000

Calculate Ariba’s Free Cash Flow during 2018 and explain the meaning of the free cash flow you have calculated to Aribia’s investors.

Solutions

Expert Solution

Free Cash flows is the portion of cash available in the hands of the company after paying all the capital expenditure and satisfying all the working capital needs.

Free cash flow = NOPAT+depreciation-(Capital Expenditure+Working Capital investment)

NOPAT - Net operating profit after taxes

Calculation :- (Million $)

EBT 2000

(-)Taxes 700

EAT 1300

(+)non operating expenses 1000

NOPAT 2300

(+)Depreciation -

(-)Capital Expenditure(WN1) 1100

(-)Working Capital Changes(WN2) -780  

Free cash flow 1980

WN1 : Capital Expenditure

Investment in Property and Goodwill = (11,000-10,000)+(800-700) = 1,000+100 = 1,100

WN2 : Working Capital changes

Changes in Accounts receivables, inventories, marketable securities, other receivables and prepaid expenses

Less changes in Accounts payables, short term borrowing andaccrued expenses

=(25000-28000)+(350-230)+(1000-900)+(5000-4000)-(6000-8000)-(5000-4000)

=-3000+120+100+1000+2000-1000

=-780

Assumptions:-

  • Depreciation is not provided for
  • Goodwill shown in the financials is the purchased goodwill
  • other liabilities are assumed as long term liabilties
  • decimals change in assets i.e 0.1 are ignored.

jeff jeffy answered 1 year ago
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