Lockheed Martin Corporation is a well-known producer of advanced aircraft, missiles, and space hardware. Lockheed Martin is
Question:
(a) Net income + Depreciation
(b) Cash flow from operating activities
(c) Cash flow from operating activities + Cash paid for interest + Cash paid for income taxes
(d) Cash flow from operating activities Capital expenditures Dividends
Instructions:
1. Using the data from Lockheeds statement of cash flows, compute values for the four measures of cash flow defined above for 2004, 2005, and 2006. Use net earnings as net income. For capital expenditures, use expenditures for property, plant, and equipment.
2. One of the definitions (a) through (d) is sometimes given the title free cash flow because it indicates the amount of discretionary cash generated by a business. Free cash flow is thought of as the amount of cash that an owner can remove from a business without harming its long-term potential. Which of these four definitions do you think applies to free cash flow? Explain.
3. A leveraged buyout (LBO) is the purchase of a company using borrowed money. The idea behind an LBO is to borrow the money, buy the company, and then repay the loan using the cash flow generated by the purchased company. Which of the four definitions of cash flow do you think would be particularly useful to someone considering an LBO?Explain.
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen