Question
In: Accounting
Using the financial statements shown below, calculate net operating working capital(NOWC)
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| Chapter Two -- Spreadsheet Assignment | ||||||||
| Using the financial statements shown below, calculate net operating working capital(NOWC), total net operating capital (OC), net operating profit after taxes (NOPAT), operating cash flow (OCF), free cash flow (FCF), and return on invested capital (ROIC). | ||||||||
| Charleston Enterprises: Income Statements for Year Ending December 31 | ||||||||
| (Thousands of Dollars) | 2017 | 2016 | ||||||
| Sales | $1,458,956 | $1,289,560 | ||||||
| Expenses excluding depreciation and amortization | $1,094,217 | $967,170 | ||||||
| EBITDA | $364,739 | $322,390 | ||||||
| Depreciation and amortization | $67,179 | $59,708 | ||||||
| EBIT | $297,560 | $262,682 | ||||||
| Interest Expense | $32,188 | $31,320 | ||||||
| EBT | $265,372 | $231,362 | ||||||
| Taxes (35%) | $92,880 | $80,977 | ||||||
| Net income | $172,492 | $150,385 | ||||||
| Common dividends | $25,874 | $22,558 | ||||||
| Addition to retained earnings | $146,618 | $127,828 | ||||||
| Charleston Enterprises: December 31 Balance Sheets | ||||||||
| (Thousands of Dollars) | ||||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $112,980 | $91,950 | ||||||
| Short-term investments | $179,000 | $90,450 | ||||||
| Accounts Receivable | $295,700 | $225,785 | ||||||
| Inventories | $561,820 | $475,790 | ||||||
| Total current assets | $1,049,500 | $803,975 | ||||||
| Net fixed assets | $247,573 | $298,540 | ||||||
| Total assets | $1,397,073 | $1,182,515 | ||||||
| 2017 | 2016 | |||||||
| Liabilities and equity | ||||||||
| Accounts payable | $164,890 | $145,980 | ||||||
| Accruals | $140,503 | $118,136 | ||||||
| Notes payable | $165,500 | $115,850 | ||||||
| Total current liabilities | $470,893 | $299,966 | ||||||
| Long-term debt | $272,473 | $276,670 | ||||||
| Total liabilities | $743,366 | $576,636 | ||||||
| Common Stock | $125,000 | $125,000 | ||||||
| Retained Earnings | $528,707 | $400,879 | ||||||
| Total common equity | $653,707 | $525,879 | ||||||
| Total liabilities and equity | $1,397,073 | $1,182,515 | ||||||
| Key Input Data: | ||||||||
| Tax rate | 35% | |||||||
| WORKZONE BELOW | ||||||||
| Net operating working capital -- NOWC | ||||||||
| 2017 | NOWC = | Operating current assets | - | Operating current liabilities | ||||
| 2017 | NOWC = | $970,500.00 | - | $305,393.00 | ||||
| 2017 | NOWC = | $665,107.00 | ||||||
| 2016 | NOWC = | Operating current assets | - | Operating current liabilities | ||||
| 2016 | NOWC = | $793,525.00 | - | $264,116.00 | ||||
| 2016 | NOWC = | $529,409.00 | ||||||
| Total net operating capital -- OC | ||||||||
| 2017 | OC = | NOWC | + | Net Fixed assets | ||||
| 2017 | OC = | $665,107 | + | $247,573 | ||||
| 2017 | OC = | $912,680.00 | ||||||
| 2016 | OC = | NOWC | + | Net Fixed assets | ||||
| 2016 | OC = | $529,409.00 | + | $298,540.00 | ||||
| 2016 | OC = | $827,949.00 | ||||||
| Net operating profit after taxes | ||||||||
| 2017 | NOPAT = | EBIT | x | ( 1 - Tax rate ) | NOTE: Do NOT type-in the | |||
| 2017 | NOPAT = | $297,560.00 | x | 0.650000 | tax rate -- cell reference! | |||
| 2017 | NOPAT = | $193,414.00 | ||||||
| Operating Cash Flow (OCF) | NOTE: | |||||||
| 2017 | OCF= | NOPAT | + | Depreciation | The OCF equation is on the | |||
| 2017 | OCF= | $193,414.00 | + | $67,179.00 | BLUE concept sheet. | |||
| 2017 | OCF= | $260,593.00 | ||||||
| Free cash flow | ||||||||
| 2017 | FCF = | NOPAT | - | Net investment in operating capital | ||||
| 2017 | FCF = | $193,414.00 | - | $84,731.00 | ||||
| 2017 | FCF = | $108,683.00 | ||||||
| Return on invested capital | ||||||||
| 2017 | ROIC = | NOPAT | / | Total net operating capital -- 2017 OC | ||||
| 2017 | ROIC = | $193,414 | / | $912,680.00 | ||||
| 2017 | ROIC = | 21.1919% | ||||||
| Assume that there were 29 million shares outstanding at the end of the year, the year-end closing stock price was $35.65 per share, and the after-tax cost of capital was 12.5000%. Calculate EVA and MVA for the most recent year. | ||||||||
| Additional Input Data: | ||||||||
| Stock price per share | $35.65 | |||||||
| # of shares (in thousands) | 29,000 | |||||||
| After-tax cost of capital | 12.5000% | |||||||
| Market Value Added | ||||||||
| MVA = | [ Stock Price | x | # of shares ] | - | Total common equity | |||
| $35.65 | x | 29,000 | ||||||
| $1,033,850.00 | - | $653,706.52 | ||||||
| MVA = | $380,143.48 | |||||||
| Economic Value Added | ||||||||
| EVA = | NOPAT | - | [ After-tax cost of capital | x | Operating Capital -- 2017 OC ] | |||
| - | 12.5000% | x | $912,680.00 | |||||
| $193,414 | - | $114,085.00 | ||||||
| EVA = | $79,329.00 | |||||||
Solutions
Expert Solution
| * | Operating current assets = cash + receivables+ inventories | ||||||
| * | Operating current liabilities = Accruals + accounts payable | ||||||
| * | Total net operating capital represents all the current and non-currents assets used by a business in its operations. It includes inventories, accounts receivables,fixed assets,etc | ||||||
| * | |||||||
| * | |||||||
| * | |||||||
| In short oc = Nowc + Fixed assets | |||||||
| NOPAT = OPERATING INCOME * (1- TAX RATE) | |||||||
| OPERATING INCOME = INCOME BEFORE MAKING INTEREST PAYMENTS | |||||||
| WORKZONE BELOW | |||||||
| Net operating working capital -- NOWC | |||||||
| 2017 | NOWC = | Operating current assets | - | Operating current liabilities | |||
| 2017 | NOWC = | $970,500.00 | - | $305,393.00 | |||
| 2017 | NOWC = | $665,107.00 | |||||
| 2016 | NOWC = | Operating current assets | - | Operating current liabilities | |||
| 2016 | NOWC = | $793,525.00 | - | $264,116.00 | |||
| 2016 | NOWC = | $529,409.00 | |||||
| Total net operating capital -- OC | |||||||
| 2017 | OC = | NOWC | + | Net Fixed assets | |||
| 2017 | OC = | $665,107 | + | $247,573 | |||
| 2017 | OC = | $912,680.00 | |||||
| 2016 | OC = | NOWC | + | Net Fixed assets | |||
| 2016 | OC = | $529,409.00 | + | $298,540.00 | |||
| 2016 | OC = | $827,949.00 | |||||
| Net operating profit after taxes | |||||||
| 2017 | NOPAT = | EBIT | x | ( 1 - Tax rate ) | |||
| 2017 | NOPAT = | $297,560.00 | x | (1-0.35) | |||
| 2017 | NOPAT = | $193,414.00 | |||||
| Operating Cash Flow (OCF) | |||||||
| 2017 | OCF= | NOPAT | + | Depreciation | |||
| 2017 | OCF= | $193,414.00 | + | $67,179.00 | |||
| 2017 | OCF= | $260,593.00 | |||||
| Free cash flow | |||||||
| 2017 | FCF = | NOPAT | - | Net investment in operating capital | |||
| 2017 | FCF = | $193,414.00 | - | $84,731.00 | |||
| 2017 | FCF = | $108,683.00 | |||||
| Return on invested capital | |||||||
| 2017 | ROIC = | NOPAT | / | Total net operating capital -- 2017 OC | |||
| 2017 | ROIC = | $193,414 | / | $912,680.00 | |||
| 2017 | ROIC = | 21.19% | |||||
| Assume that there were 29 million shares outstanding at the end of the year, the year-end closing stock price was $35.65 per share, and the after-tax cost of capital was 12.5000%. Calculate EVA and MVA for the most recent year. | |||||||
| Additional Input Data: | |||||||
| Stock price per share | $35.65 | ||||||
| # of shares (in thousands) | 29,000 | ||||||
| After-tax cost of capital | 12.50% | ||||||
| Market Value Added | |||||||
| MVA = | [ Stock Price | x | # of shares ] | - | Total common equity | ||
| $35.65 | x | 29,000 | |||||
| $1,033,850.00 | - | $653,706.52 | |||||
| MVA = | $380,143.48 | ||||||
| Economic Value Added | |||||||
| EVA = | NOPAT | - | [ After-tax cost of capital | x | Operating Capital -- 2017 OC ] | ||
| - | 12.50% | x | $912,680.00 | ||||
| $193,414 | - | $114,085.00 | |||||
| EVA = | $79,329.00 | ||||||
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(CF Subscript tCFt)
in thousands
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$80
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2014
2013
Cash
15
16
Short-term investments
10
65
Accounts receivable
369
317
Inventories
551
420
Property, plant & equipment (net)
928
874
Accounts payable
45
35
Short-term debt
99
65
Accrued liabilities
146
132
Long-term debt
658
585
Common stock
130
130
Retained earnings
770
714
Net revenue
3143
2850
Depreciation expense
113
92
Interest
89
63
Taxes
81
85
Net income
252
124
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