Question

Sheaves, Inc., has sales of $54,000, costs of $24,600, depreciation expense of $2,650, and interest expense of $2,400. If the tax rate is 21 percent, what is the operating cash flow, or OCF? (Do not round intermediate calculations.)

Answer 1

The operating cash flow (OCF) for Sheaves, Inc. is $21,885.5.

Step-by-step explanation:

To calculate the operating cash flow (OCF), we need to subtract the non-cash expenses from the earnings before interest and taxes (EBIT) and then add back the depreciation expense. The calculation is as follows:

1. EBIT = Sales - Costs - Depreciation Expense - Interest Expense
2. EBIT = $54,000 - $24,600 - $2,650 - $2,400
3. EBIT = $24,350
4. OCF = EBIT + Depreciation Expense - Taxes
5. OCF = $24,350 + $2,650 - (21% * $24,350)
6. OCF = $24,350 + $2,650 - $5,114.5
7. OCF = $21,885.5

Therefore, the operating cash flow (OCF) is $21,885.5.

Answer 2

The operating cash flow (OCF) for Sheaves, Inc. is $28,010.

Step-by-step explanation:

To calculate the operating cash flow (OCF), we use the formula:

`\[ OCF = (S - C - D) * (1 - T) + D + I \]`

Where:

`\( S \)` is sales,

`\( C \)` is costs,

`\( D \)` is depreciation expense,

`\( T \)` is the tax rate,

`\( I \)` is interest expense.

Substituting the given values:

`\[ OCF = (54,000 - 24,600 - 2,650) * (1 - 0.21) + 2,650 + 2,400 \]`

After performing the calculations, the operating cash flow (\( OCF \)) is $28,010.

The operating cash flow represents the cash generated or used by a company's normal business operations. In the context of Sheaves, Inc., the positive OCF of $28,010 indicates that the company generated cash from its core operations after accounting for operating expenses, taxes, and interest.

This positive cash flow is a favorable sign, suggesting that the company's operational activities are generating more cash than is required to maintain and grow the business. It provides valuable insights for assessing the financial health and sustainability of Sheaves, Inc., allowing stakeholders to make informed decisions regarding the company's financial management and future investments.