Question

The following information has been extracted from the financial statements of a company. Use it to answer the 4 questions that follow it. When answering the questions (filling in the blanks), DO NOT use dollar signs, USE commas to separate thousands, DO NOT use parenthesis to denote negative numbers, USE the negative sign in front of first digit for negative numbers. Round to the nearest dollar.

Earnings before interests and taxes: EBIT in 2020 =	600
Tax rate: T =	25%
Accumulated depreciation in balance sheet of 2019 =	50
Accumulated depreciation in balance sheet of 2020 =	60
Net Fixed Assets in 2019 =	1,200
Net Fixed Assets in 2020 =	1,500
Other Long-Term assets in 2019 =	0
Other Long-Term assets in 2020 =	0
Net operating working capital (NOWC) in 2019 =	30
Current assets in balance sheet of 2020 =	30
Current liabilities in balance sheet of 2020	20

1. What is the Net Cash Flow (NFC) for 2020?

2. What is the Investment in Gross Fixed Assets for 2020?

3. What is the investment in net operating working capital (Investment NOWC) for 2020?

4. What is the Free Cash Flow (FCF) for 2020?

Answer 1

1) Net Cash Flow = Cash Flow from Operations + Cash flow from Investing + Cash Flow from Financing

Particulars	Amount
EBIT	600.00
(-) Tax @25%	-150.00
Net Income	450.00
(+) Depreciation	10.00
(-) Working capital changes	20.00
Cash Flow From Operations	480.00

Depreciation Expense = Accumulated depreciation (2020) - Accumulated Depreciation (2019)
= 60 - 50 = 10

Cash Flow From Investing = Net Fixed Assets (2019) - Net Fixed Assets (2020) - Depreciation expense (2020)
= 1,200 - 1,500 - 10
= -310

Cash Flow From Financing = 0

Net Cash Flow = 480 + (-310) + 0
Net Cash Flow = 170

2) Investment in Gross Fixed Assets = Gross Fixed Assets in 2019 - Gross Fixed Assets in 2020
Gross Fixed Assets = Net Fixed Assets + Accumulated Depreciation

Gross Fixed Assets (2020) = 1,500 + 60
= 1,560
Gross Fixed Assets (2019) = 1,200 + 50
= 1,250
Investment in Gross Fixed Asset = 1,250 - 1,560 = -310

3) Net Operating Working Capital (NOWC) = Current Assets - Current Liabilities

Net Operating Working Capital (2020) = 30 - 20 = 10
Net Operating Working Capital (2019) = 30

Investment in NOWC in 2020 = NOWC (2019) - NOWC (2020)
= 30 - 10
Investment in NOWC in 2020 = 20

4) Free Cash Flow = Cash Flow From operations - Capital Expenditure
Capital Expenditure = Investment in Gross Fixed Asset = 310

Free Cash Flow (2020) = 480 - 310 = 170