Question

The Pharoah Company has disclosed the following financial information in its annual reports for the period ending March 31, 2017: sales of $1.416 million, cost of goods sold of $815,000, depreciation expenses of $175,000, and interest expenses of $89,575. Assume that the firm has an average tax rate of 35 percent. Compute the cash flows to investors from operating activity.

Cash flow from operating activity

Pharoah Electronics reported the following information at its annual meetings: The company had cash and marketable securities worth $1,235,455, accounts payables worth $4,159,357, inventory of $7,177,700, accounts receivables of $3,469,300, short-term notes payable worth $1,133,300, and other current assets of $121,455. What is the company's networking capital?

Net working capital

Answer 1

The cash flow from operating activity is computed by using the below mentioned formula:

= EBIT + Depreciation - tax expenses

EBIT is computed as follows:

= Sales - cost of goods sold - depreciation expenses

= $ 1,416,000 - $ 815,000 - $ 175,000

= $ 426,000

Tax expenses is computed as follows:

= ( EBIT - interest expenses ) x tax rate

= ( $ 426,000 - $ 89,575 ) x 35%

= $ 117,748.75

So the operating cash flow will be:

= $ 426,000 + $ 175,000 - $ 117,748.75

= $ 483,251.25

The net working capital is computed as shown below:

= cash and marketable securities + inventory + accounts receivable + other current assets - accounts payable - short term notes payable

= $ 1,235,455 + $ 7,177,700 + $ 3,469,300 + $ 121,455 - $ 4,159,357 - $ 1,133,300

= $ 6,711,253