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Homework answers / question archive / Consider the following simplified Statement of Comprehensive Income and Statement of Financial Position from Smith Corporation’s 2018 Annual Report to Shareholders
Consider the following simplified Statement of Comprehensive Income and Statement of
Financial Position from Smith Corporation’s 2018 Annual Report to Shareholders.
Smith Corporation Statement of Comprehensive Income ($ millions)
|
Net sales |
$8,324 |
|
Cost of goods sold |
$4,988 |
|
Depreciation |
$1,190 |
|
Earnings before interest and taxes |
$2,146 |
|
Interest paid |
$320 |
|
Taxable income |
$1,826 |
|
Taxes |
$621 |
|
Net income |
$1,205 |
Smith Corporation Statement of Financial Position 2017 & 2018 ($ millions)
|
2017 |
2018 |
2017 |
2018 |
||
|
Cash |
$5,415 |
$3,341 |
Accounts Payable |
1,110 |
1,650 |
|
Accounts rec. |
$2,460 |
$979 |
Notes Payable |
2,500 |
1,900 |
|
Inventory |
$2,405 |
$2,885 |
Total |
3,610 |
3,550 |
|
Total |
10,280 |
7,205 |
Long-Term debt |
4,800 |
4,600 |
|
Net fixed assets |
12,300 |
16,720 |
Common Stock |
5,100 |
5,900 |
|
Retained earnings |
9,070 |
9,875 |
|||
|
Total assets |
22,580 |
23,925 |
Total liabilities and Owner’s equity |
22,580 |
23,925 |
d. Calculate cash-flow from assets, cash-flow to debtholders, and cash-flow to equity holders. Does the cash-flow identity hold?
Answer:
Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $2,146 + $1,190 - $621
Operating Cash Flow = $2,715
Net Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation
Net Capital Spending = $16,720 - $12,300 + $1,190
Net Capital Spending = $5,610
Change in Net Working Capital = Ending Net Working Capital – Beginning Net Working Capital
Net Working Capital = Current Assets – Current Liabilities
Ending Net Working Capital = $7,205 - $3,550
Ending Net Working Capital = $3,655
Beginning Net Working Capital = $10,280 - $3,610
Beginning Net Working Capital = $6,670
Change in Net Working Capital = $3,655 - $6,670
Change in Net Working Capital = -$3,015
Cash flow from assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash flow from assets = $2,715 - $5,610 – (-$3,015)
Cash flow from assets = $120
Cash flow to debt holders = Interest Paid – Net New Borrowing
Net New Borrowing = $4,600 - $4,800
Net New Borrowing = -$200
Cash flow to debt holders = $320 – (-$200)
Cash flow to debt holders = $520
Cash Flow to Equity holders = Dividend paid – Net New Equity issued
Net New Equity issued = $5,900 - $5,100
Net New Equity issued = $800
Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividend
$9,875 = $9,070 + $1,205 – Dividend
Dividend = $400
Cash Flow to Equity holders = $400 - $800
Cash Flow to Equity holders = -$400
Yes, Cash flow identity hold as Cash flow from asset is equal to Cash flow to debt holders and Cash flow to equity holders.
Cash Flow from assets = Cash Flow to debt holders + Cash Flow to Equity holders
$120 = $520 + (-$400)
$120 = $120
