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 = $2,665 + 298 – 559
OCF = $2,404
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
$4,322
– Beginning net fixed assets
3,356
+ Depreciation
298
Net capital spending
$1,264
And the change in net working capital was:
Change in net working capital
Ending NWC
$1,361
– Beginning NWC
1,097
Change in NWC
$264
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow
$2,404
– Net capital spending
1,264
– Change in NWC
264
Cash flow from assets
$876
Interest paid
$164
– Net New Borrowing
Cash flow to Creditors
$128
The cash flow to stockholders was:
Cash flow to stockholders
Dividends paid
$688
– Net new equity raised
– 60
Cash flow to Stockholders
$748
The accounting cash flow statement of cash flows for the year was:
Statement of Cash Flows
Operations
Net income
$1,876
Depreciation
298
Deferred taxes
66
Changes in assets and liabilities
Accounts receivable
–57
Inventories
26
Accounts payable
41
Accrued expenses
–185
Other
–16
Total cash flow from operations
$2,049
Investing activities
Acquisition of fixed assets
Sale of fixed assets
Total cash flow from investing activities
Financing activities
Retirement of debt
Proceeds of long-term debt
274
Dividends
–688
Repurchase of stock
–79
Proceeds from new stock issues
19
Total cash flow from financing activities
Change in cash (on balance sheet)
$73
Answers to questions
1. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from
3. The expansion plans look like they are probably a good idea. The company was able to return a