Question

The 2018 balance sheet of Speith’s Golf Shop, Inc., showed long-term debt of $5.4 million, and the 2019 balance sheet showed long-term debt of $5.65 million. The 2019 income statement showed an interest expense of $175,000. The 2018 balance sheet showed $530,000 in the common stock account and $2.3 million in the additional paid-in surplus account. The 2019 balance sheet showed $570,000 and $2.5 million in the same two accounts, respectively. The company paid out $400,000 in cash dividends during 2019. Suppose you also know that the firm’s net capital spending for 2019 was $1,390,000, and that the firm reduced its net working capital investment by $73,000. What was the firm’s 2019 operating cash flow, or OCF? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

$1,402,000

Step-by-step explanation:

To find operating cash flow we need to find cashflow from assets first. we need to go through some calculations in order to find cash flow from assets

Cash Flow to Creditors = Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]

Cash Flow to Creditors = $175,000 – [$5,650,000 - $5,400,000]

Cash Flow to Creditors = $175,000 - $250,000

Cash Flow to Creditors = -$75,000

Cash Flow to Stockholders = Dividend Paid – Net New Equity

Cash Flow to Stockholders= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

Cash Flow to Stockholders = $400,000 – [($570,000 + $2,500,000) – ($530,000 + $2,300,000)]

Cash Flow to Stockholders = $400,000 – [$3,070,000 - $2,830,000]

Cash Flow to Stockholders = $400,000 - $240,000

Cash Flow to Stockholders = $160,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

Cash Flow from assets = -$75,000 + $160,000

Cash Flow from assets = $85,000

Operating Cash Flow

We know,

Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending

$85,000 = Operating cash flow – (-$73,000) - $1,390,000

Operating cash flow = $85,000 - $73,000 - $1,390,000

Operating cash flow = $1,402,000