ACCOUNTING STATEMENTS AND CASH FLOW

Problem 1
Predator Pucks, Inc. has current assets of $4,000, net fixed assets of $22,500, current
liabilities of $3,400, and long-term debt of $6,800. What is the value of the shareholders
equity account for this firm? How much is net working capital?

ASSETS

LIABILITIES & OWNERS' EQUITY

Current assets
Net fixed assets

4,000
22,500

Current liabilities

3,400

Long term debt

6,800

Owners' equity
Total assets

26,500

Total Liabilities + Equity

26,500

Owners' equity = 26,500 3,400 6,800 = 16,300

NWC = 4,000 3,400 = 600

Problem 2
Mama Roach Exterminators Inc. has sales of $634,000, COGS $305,000, depreciation
expense of $46,000, interest expense of $29,000 and tax rate of 35%. What is the net income
for this firm?
Sales

634,000

Cost of Goods Sold

305,000

Depreciation
= EBIT

283,000

Interest

29,000

= Taxable income
Tax
= Net income

46,000

(tax rate = 35%)

254,000
88,900
165,100

Problem 3
Parrothead Enterprises Balance Sheets 2010 & 2011
Assets
Current assets
Net fixed assets

Liabilities & Owners' Equity

2010

2011

725

785

2990

3600

Current liabilities
Long term debt
Owners' equity

Total assets

Total Liab. + Equity

Parrothead Enterprises Income statement 2011

Sales

9,200

Cost of Goods Sold

4,290

Depreciation

820

= Operating Income/EBIT

4,090

Interest

234

= Pre-tax/Taxable income
Tax

3,856
3,856 x 35% = 1,349.6

= Net income

a. Find owners equity in at the end of each year?

Total assets 2010 = $725 + 2,990 = $3,715
Owners equity 2010 = $3,715 $290 $1,580 = $1,845
Total assets 2011 = $785 + 3,600 = $4,385
Owners equity 2011 = $4,385 $325 $1,680 = $2,380
b. Find the change in net working capital?
NWC = Current assets Current liabilities
NWC 2010 = $725 290 = $435
NWC 2011 = $785 325 = $460
Change in NWC = NWC 2011 NWC 2010 = $460 435 = $25

2010

2011

290

325

1580

1680

c. The firm purchased $1,500 new fixed assets during the year. What is the amount of find
fixed assets sold during the year? Calculate CF from assets.
Net capital spending (or Investment in FA) = FA bought FA sold
Investment in FA = Net FA 2011 Net FA 2010 + Depreciation
= $3,600 2,990 + 820 = $1,430
Fixed assets sold = $1,500 1,430 = $70
Cash flow from assets
(1) EBIT

4,090

+ depreciation

820

Current taxes

1,349.6

= Operating CF

3,560.4

(2) Investment in FA:

1,430

(3) Change in net working capital

25

CF from assets = (1) (2) (3)

2,105.4

d. The firm raised $300 new long-term debt during the year. What is the amount of debt
paidoff during the year? Calculate CF to creditors (bondholders).
Net borrowing = Debt issued Debt paidoff
Net borrowing = LT debt 2011 LT debt 2010
= 1,680 1,580 = 100
Debt paidoff = 300 100 = 200
Cash flow to creditors
Interest paid

234

Net new borrowing

CF to creditors

100
134

Problem 4
Calculate CF from Assets, CF to Bondholders, and CF to Stockholders for WildHack.

WildHack

2011 Income Statement

Sales
COGS
Depreciation
EBIT
Interest
Taxable income
Taxes
Net income

3,756
2,453
490
813
613
200
68
132

Dividends
Addition to retained earnings
WildHack

($ million)

46
86

Balance Sheets as of December 31, 2010 and 2011

2010

2011

120
224
424
768

88
192
368
648

5,228

5,354

5,996
========

6,002
========

Liabilities & Owners' equity

Current liabilities
A/P
N/P
Total

124
1,412
1,536

144
1,039
1,183

Long term debt

1,804

2,077

Owners' equity
Common stock and paid in surplus
Retained earnings
Total

300
2,356
2,656

300
2,442
2,742

5,996
========

6,002
========

Assets
Current assets
Cash
A/R
Inventory
Total
Fixed assets
Net plant and equipment
Total assets

Total Liabilities + Equity

Financial Cash Flow Worksheet

CF from assets

CF to bondholders & stockholders

(1) Operating CF
EBIT

(1) Cash flow to creditors

813

Interest paid

613

+ depreciation

490

Net new borrowing (**)

273

current taxes

68

= CF to creditors

340

= Operating CF

1235

(2) Investment in Fixed assets (FA)

(2) Cash flow to stockholders

Ending Net FA

5354

Beginning Net FA

5228

Net new equity (***)

+ Depreciation

490

= CF to stockholders

46

= Investment in FA
(or Net Capital Spending)

Dividends

46

616

(3) Change in net

working capital (NWC)
Ending NWC (*)

-535

Beginning NWC (*)

-768

= Change in NWC

233

CF from assets
= (1) (2) (3)

386

Cash flow to bondholders

& stockholders = (1) + (2)

386

(*)

NWC = Current assets Current liabilities

Ending NWC = 648 1183 = -535
Beginning NWC = 768 1536 = -768

(**) Net new borrowing = Ending LT debt Beginning LT debt

= 2077 1804 = 273
(***) Net new equity = Ending Common stock & paid in surplus Beginning CS & PIS
= 300 300 = 0