C-1 CASE SOLUTIONS
CHAPTER 2
CASH FLOWS AT WARF COMPUTERS
The operating cash flow for the company is: (NOTE: All numbers are in thousands of dollars)
OCF = EBIT + Depreciation – Current taxes
OCF = $2,080 + 248 – 605
OCF = $1,723
To calculate the cash flow from assets, we need to find the capital spending and change in net
working capital. The capital spending for the year was:
Capital spending
Ending net fixed assets $3,601
And the change in net working capital was:
Change in net working capital
Ending NWC $1,135
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow $1,723
The cash flow to creditors was:
Cash flow to creditors
Interest paid $137
C-2 CASE SOLUTIONS
Dividends paid $292
The accounting cash flow statement of cash flows for the year was:
Statement of Cash Flows
Operations
Net income $1,167
Depreciation 248
Deferred taxes 171
Changes in assets and liabilities
Investing activities
Acquisition of fixed assets $(1,482)
Financing activities
Retirement of debt $(197)
Proceeds of long-term debt 228
Dividends (292)
Answers to questions
1. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from
operations and a positive cash flow from assets. The firm invested $221 in new net working capital
2. The financial cash flows present a more accurate picture of the company since it accurately reflects
C-3 CASE SOLUTIONS
3. The expansion plans look like they are probably a good idea. The company was able to return a