Question

Amalgamated Industries has Sales of 1,000, COGS of 250,

Administrative Expenses of 350, and Depreciation of 300. If
Interest Expense is 50, and Taxes are 25, what is their Operating
Cash Flow?

Answer 1

The Operating Cash Flow (OCF) for Amalgamated Industries is calculated by adding EBIT (earnings before interest and taxes) to Depreciation. The EBIT is Sales minus COGS and Administrative Expenses, which totals to $400. With Depreciation added back in, the OCF is $700.

Step-by-step explanation:

To calculate the Operating Cash Flow (OCF) for Amalgamated Industries, we start with the earnings before interest and taxes (EBIT), which is Sales minus COGS (Cost of Goods Sold) and Administrative Expenses. Depreciation is a non-cash charge, so we add it back to the EBIT. We do not consider interest and taxes for OCF as they are financing and tax activities, respectively. The formula for OCF is therefore EBIT + Depreciation. Calculating these:

EBIT = Sales - COGS - Administrative Expenses = 1,000 - 250 - 350 = $400

OCF = EBIT + Depreciation = $400 + $300 = $700

Therefore, the Operating Cash Flow for Amalgamated Industries is $700.