# finding operating and free cash flows

## Project Description:

consider the following balance sheets and selected data from the income statement of keith corporation, then prepare answers for the accompanying questions:

keith corporation balance sheets
assets 12/31/2009 12/31/2008
cash \$ 1,500 \$ 1,000
marketable securities 1,800 1,200
accounts receivable 2,000 1,899
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 \$ 15,100
total assets \$ 23,000 \$ 21,800
liabilities and stockholder’s 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 stockholder’s equity \$ 13,400 \$ 12,800
total liabilities and owners equity \$ 23,000 \$ 21,800

keith corporation income statement data (2109)

depreciation expense \$ 1,600
earnings before interest and taxes 2,700
interest expense 367
net profits after taxes 1,400
tax rate 40%

a. calculate the firm’s accounting cash flow from operations for the year ended december 31, 2009, using: cash flow from operations = net profits after tax + depreciation
b. calculate the firm’s net operating profit after taxes (nopat) for the year ended december 31, 2009, using equation: nopat = ebit x (1 – t)
c. calculate the firm’s operating cash flow (ocf) for the year ended december 31, 2009, using equation: ocf = nopat + depreciation
d. calculate the firm’s free cash flow (fcf) for the year ended december 31, 2009, using the equation in p1, above.
e. interpret, compare, and contrast your cash flow estimates in parts a, c, and d.
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