CHAPTER 2
CASH FLOWS AND FINANCIAL
STATEMENTS AT SUNSET BOARDS
Below are the financial statements that you are asked to prepare.
1. The income statement for each year will look like this:
Income statement
2015
2016
Sales
$400,111
$487,712
Cost of goods sold
203,963
257,528
Selling & administrative
40,110
52,351
2. The balance sheet for each year will be:
Cash
$29,429
Accounts payable
$ 52,015
Accounts receivable
20,854
Notes payable
23,708
Inventory
43,884
Current liabilities
$ 75,723
Long-term debt
$ 128,218
Net fixed assets
Owners’ equity
$ 144,243
Total assets
Total liab. & equity
$ 348,184
Depreciation
57,576
65,076
EBIT
Interest
EBT
Taxes
Net income
$68,746
$78,730
Dividends
$34,373
$39,365
Addition to retained earnings
34,373
39,365
Cash
$ 31,267
Accounts payable
$ 57,708
Accounts receivable
27,050
Notes payable
25,885
3. Using the OCF equation:
OCF = EBIT + Depreciation – Taxes
4. 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
$316,825
– Beginning net fixed assets
254,017
+ Depreciation
Net capital spending
$127,884
Ending NWC
Change in NWC
$16,502
Inventory
Current liabilities
Current assets
$ 118,539
Long-term debt
$ 143,971
Net fixed assets
$ 316,825
Owners’ equity
$ 207,800
Total assets
Total liab. & equity
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow
$158,151
– Net capital spending
127,884
– Change in NWC
16,502
Cash flow from assets
$13,765
5. The cash flow to creditors was:
Cash flow to creditors
6. The cash flow to stockholders was:
Cash flow to stockholders
Dividends paid
– Net new equity raised
Cash flow to stockholders
Answers to questions
1. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from
operations. The firm invested $16,502 in new net working capital and $127,884 in new fixed assets.
Interest paid
$14,345
Cash flow to creditors