4–6
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
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| 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 |
| Total current assets | $ 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 |
| Liabilities and stockholders’ equity | ||
| Accounts payable | $ 1,600 | $ 1,500 |
| Notes payable | 2,800 | 2,200 |
| Accruals | 200 | 300 |
| Total current liabilities | $ 4,600 | $ 4,000 |
| Long-term debt | 5,000 | 5,000 |
| Total liabilities | $ 9,600 | $ 9,000 |
| Common stock | $10,000 | $10,000 |
| Retained earnings | 3,400 | 2,800 |
| Total stockholders’ equity | $13,400 | $12,800 |
| Total liabilities and stockholders’ equity | $23,000 | $21,800 |
| Keith Corporation Income Statement Data (2015) | ||
| 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.
