CHAPTER 3 Cash Flow and Financial Planning 131LG2 3–6 Finding operating and free cash flows Consider the balance sheets and selected
data from the income statement of Keith Corporation that follow.
a. Calculate the firm’s accounting cash flow from operationsfor the year ended
December 31, 2003, using Equation 3.1.
b. Calculate the firm’s operating cash flow(OCF) for the year ended
December 31, 2003, using Equation 3.2.
c. Calculate the firm’s free cash flow (FCF) for the year ended December 31,
2003, using Equation 3.3.
d. Interpret, compare, and contrast your cash flow estimates in parts a, b,and c.
Keith Corporation
Balance Sheets
December 31
Assets 2003 2002Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800Inventories (^2) , (^9) (^0) (^0) (^2) , (^8) (^0) (^0)
Total current assets $ (^8) , (^2) (^0) (^0) $ (^6) , (^8) (^0) (^0)
Gross fixed assets $29,500 $28,100
Less: Accumulated depreciation (^1) (^4) , (^7) (^0) (^0) (^1) (^3) , (^1) (^0) (^0)
Net fixed assets $ (^1) (^4) , (^8) (^0) (^0) $ (^1) (^5) , (^0) (^0) (^0)
Total assets $
2
3
,
0
0
0
$
2
1
,
8
0
0
Liabilities and Stockholders’ Equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals (^2) (^0) (^0) (^3) (^0) (^0)
Total current liabilities $ (^4) , (^6) (^0) (^0) $ (^4) , (^0) (^0) (^0)
Long-term debt $ (^5) , (^0) (^0) (^0) $ (^5) , (^0) (^0) (^0)
Common stock $10,000 $10,000
Retained earnings (^3) , (^4) (^0) (^0) (^2) , (^8) (^0) (^0)
Total stockholders’ equity $ (^1) (^3) , (^4) (^0) (^0) $ (^1) (^2) , (^8) (^0) (^0)
Total liabilities and stockholders’ equity $
2
3
,
0
0
0
$
2
1
,
8
0
0
Income Statement Data (2003)
Depreciation expense $11,600
Earnings before interest and taxes (EBIT) 2,700
Taxes 933
Net profits after taxes 1,400
Item Change ($) Item Change ($)
Cash 100 Accounts receivable 700
Accounts payable 1,000 Net profits 600
Notes payable 500 Depreciation 100
Long-term debt 2,000 Repurchase of stock 600
Inventory 200 Cash dividends 800
Fixed assets 400 Sale of stock 1,000