Question

Sheryl's Shipping had sales last year of $18,500. The cost of goods sold was $8,200, general and administrative expenses were

$2,700, interest expenses were $2,200, and depreciation was $2,700. The firm's tax rate is 21%.
a. What are earnings before interest and taxes?
b. What is net income?
c. What is cash flow from operations?

Answer 1

a. Earnings Before Interest and Taxes (EBIT) = $7,600

b. Net Income = $3,804

c. Cash Flow from Operations = $6,504

Step-by-step explanation:

To calculate the values requested, we can use the following formulas:

a. Earnings Before Interest and Taxes (EBIT) = Sales - Cost of Goods Sold - General and Administrative Expenses

b. Net Income = EBIT - Interest Expenses - Taxes

c. Cash Flow from Operations = Net Income + Depreciation

Let's plug in the given values and calculate each of these:

a. EBIT = $18,500 - $8,200 - $2,700 = $7,600

b. Taxes = 21% * EBIT = 0.21 * $7,600 = $1,596

Net Income = EBIT - Interest Expenses - Taxes = $7,600 - $2,200 - $1,596 = $3,804

c. Cash Flow from Operations = Net Income + Depreciation = $3,804 + $2,700 = $6,504

Therefore:

a. Earnings Before Interest and Taxes (EBIT) = $7,600

b. Net Income = $3,804

c. Cash Flow from Operations = $6,504