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P4–6
Finding operating and free cash flows Consider the following
balance sheets and selected data from the income statement of Keith
Corporation.
Keith Corporation Balance Sheets
December 31 Assets 2015 2014 Cash $ 1,500 $ 1,000 Marketable securities 1,800 1,200 Accounts receivable 2,000 1,800 Inventories 2,900 2,800 $ 8,200 $ 6,800 Gross fixed assets $29,500 $28,100 Less: Accumulated depreciation 14,700 13,100 Net fixed assets $14,800 $15,000 Total assets $23,000 $21,800 Total current assets Liabilities and stockholders’ equity Keith Corporation Balance Sheets
December 31 Assets 2015 2014 Cash $ 1,500 $ 1,000 Accounts payable $ 1,600 $ 1,500 Notes payable 2,800 2,200 200 300 $ 4,600 $ 4,000 5,000 5,000 $ 9,600 $ 9,000 $10,000 $10,000 3,400 2,800 Total stockholders’ equity $13,400 $12,800 Total liabilities and stockholders’ equity $23,000 $21,800 Accruals
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings Keith Corporation Income Statement Data (2015) Keith Corporation Balance Sheets
December 31 Assets
Cash 2015 2014 $ 1,500 $ 1,000 Depreciation expense $1,600 Earnings before interest and taxes (EBIT) 2,700 Interest expense 367 Net profits after taxes 1,400 Tax rate 40% a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year
ended December 31, 2015, using Equation 4.1.
b. Calculate the firm’s operating cash flow (OCF) for the year ended
December 31, 2015, using Equation 4.3. c. Calculate the firm’s free cash flow (FCF) for the year ended December
31, 2015, using Equation 4.4.
d. Interpret, compare, and contrast your cash flow estimates in parts b
and c.
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P4–19
Integrative: Pro forma statements Red Queen Restaurants wishes
to prepare financial plans. Use the financial statements and the other
information provided below to prepare the financial plans.
The following financial data are also available: (1) The firm has estimated that its sales for 2016 will be $900,000. (2) The firm expects to pay $35,000 in cash dividends in 2016. (3) The firm wishes to maintain a minimum cash balance of $30,000. (4) Accounts receivable represent approximately 18% of annual sales. (5) The firm’s ending inventory will change directly with changes in
sales in 2016. (6) A new machine costing $42,000 will be purchased in 2016. Total
depreciation for 2016 will be $17,000. (7) Accounts payable will change directly in response to changes in
sales in 2016. (8) Taxes payable will equal one-fourth of the tax liability on the pro
forma income statement. (9) Marketable securities, other current liabilities, long-term debt, and
common stock will remain unchanged. a. Prepare a pro forma income statement for the year ended December 31,
2016, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2016, using the
judgmental approach.
c. Analyze these statements, and discuss the resulting external financing
required. Red Queen Restaurants Income Statement for the Year Ended December 31, 2015
