Question

The 2018 balance sheet of Speith's Golf Shop Inc., showed long-term debt of $5.6 million, and the 2019 balance sheet showed long-term debt of $5.85 million. The 2019 income statement showed and interest expense of $185,000. The 2018 balance sheet showed $550,000 in the common stock account and $4.7 million in the additional paid-in surplus account. The 2019 balance sheet showed $590,000 and $5.1 million in the same two accounts, respectively. The company paid out $550,000 in cash dividends during 2019. Suppose that you also know that the firm's net capital spending for 2019 was $1,140,000, and that the firm reduced its networking capital investment by $77,000.

What was the firm's 2019 operating cash flow, or OFC?

PLEASE SHOW WORK, THANK YOU!

Answer 1

Cash Flow to Creditors

Cash Flow to Creditors = Interest Expenses Paid – Net Increase in Long term debt

= Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]

= $185,000 – [$5,850,000 - $5,600,000]

= $185,000 - $250,000

= -$65,000

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid – Net New Equity

= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

= $550,000 – [($590,000 + $5,100,000) – ($550,000 + $4,700,000)]

= $550,000 – [$5,690,000 - $5,250,000]

= $550,000 - $440,000

= $110,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$65,000 + $110,000

= -$45,000

Operating Cash Flow  

Operating Cash Flow using the Cash Flow from assets Equation

We know, Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending

-$45,000 = Operating cash flow – (-$77,000) - $1,140,000

Operating cash flow = -$45,000 - $77,000 + $1,140,000

Operating cash flow = $1,108,000

“Therefore, the firm's 2019 operating cash flow, or OCF will be $1,108,000”