Presented below is a condensed version of comparative balance sheets partial for Orozco Corporation’s for the last two years at December 31.

Obermeyer Corporation issued the following statement of cash flows for 2017.

OBERMEYER CORPORATION
Statement of Cash Flows—Indirect Method
For the Year Ended December 31, 2017
Cash flows from operating activities
Net income		$59,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	9,100
Loss on disposal of equipment	9,500
Increase in inventory	(5,000)
Decrease in accounts receivable	3,300
Decrease in accounts payable	(2,200)	14,700
Net cash provided by operating activities		73,700
Cash flows from investing activities
Sale of investments	3,100
Purchase of equipment	(27,000)
Net cash used by investing activities		23,900)
Cash flows from financing activities
Issuance of stock	20,000
Payment on long-term note payable	(10,000)
Payment for dividends	(15,000)
Net cash used by financing activities		(5,000)
Net increase in cash		44,800
Cash at beginning of year		13,000
Cash at end of year		$57,800

 

Instructions

1. Compute free cash flow for Obermeyer Corporation.
2. Explain why free cash flow often provides better information than “Net cash provided by operating activities.”

Additional information:

1. Net cash provided by operating activities for 2019 was $132,000
2. Cash dividends of $60,000 were declared and paid.
3. Bonds payable amounting to $50,000 were retired through issuance of common stock.
4. Net income for 2019 was $125,000

 

Instruction

Determine Orozco Corporation’s current cash debt coverage ratio, cash debt coverage ratio, and free cash flow. Comment on its liquidity and financial flexibility.