Final answer:
Kerber's Tennis Shop, Inc.'s 2018 operating cash flow was calculated to be $1,477,000 after considering cash flows to creditors and stockholders, net capital spending, changes in net working capital, and the interest expense.
Step-by-step explanation:
To calculate the firm’s 2018 operating cash flow (OCF), we start with the cash flow to creditors and stockholders and then adjust for net capital spending and changes in net working capital. From the information provided, we know the cash flow to creditors was –$50,000, meaning the firm must have repaid $50,000 more in debt than it borrowed. We also know the cash flow to stockholders was $60,000, which is the net money paid out to stockholders in the form of dividends or net stock repurchases.
The net capital spending of $1,310,000 indicates the money spent by the firm on fixed assets less any proceeds from the sale of those assets. Because the firm also reduced its net working capital investment by $57,000, this reduction in working capital needs will increase available cash flows. Summing these numbers gives us the total cash flow from assets.
The operating cash flow (OCF) can be calculated after accounting for interest expense as well:
- Total cash flow from assets = Cash flow to creditors + Cash flow to stockholders + Net capital spending – Change in net working capital
- Total cash flow from assets = –$50,000 + $60,000 + $1,310,000 – (–$57,000)
- Total cash flow from assets = $1,377,000
Finally, we account for interest expense to find the OCF:
- Operating cash flow (OCF) = Total cash flow from assets + Interest expense
- Operating cash flow (OCF) = $1,377,000 + $100,000
- Operating cash flow (OCF) = $1,477,000
Therefore, Kerber's Tennis Shop, Inc.'s operating cash flow for 2018 was $1,477,000.