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The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,420,000, $144,000 in the common stock account, and $2,690,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet showed long-term debt of $1,620,000, $154,000 in the common stock account and $2,990,000 in the additional paid-in surplus account. The 2019 income statement showed an interest expense of $96,000 and the company paid out $149,000 in cash dividends during 2019. The firm’s net capital spending for 2019 was $1,000,000, and the firm reduced its net working capital investment by $129,000.

Required:
What was the firm's 2019 operating cash flow, or OCF?

1 Answer

5 votes

Answer:

606,000

Step-by-step explanation:

Operating cash flow (OCF) is a measure of the amount of cash generated by a company's normal business operations. Operating cash flow indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations, otherwise, it may require external financing for capital expansion

Operating Cashflow = Cashflow from assets + Net capital spending + Change in Net working capital

Operating Cashflow =(-265,000) + (1,000,000) + (-129,000)

Operating Cashflow = 606,000

Working

New borrowings = Long term borrowings (2019) - Long term borrowings (2018)

New borrowings = 1,620,000 - 1,420,000

New borrowings = 200,000

Cash flow to creditors = Interest expense - new borrowings

Cash flow to creditors = 96,000 - 200,000

Cash flow to creditors = 104,000

New equity = ((Common stock(2019) + additional paid in surplus(2019)) - (Common stock(2018) + additional paid in surplus(2018))

New equity = ($154,000 + $2,990,000) - ($144,000 + $2,690,000)

New equity = 3,144,000 - 2,834,000

New equity = 310,000

Cashflow to stockholders = Dividend (2019) - new equity

Cashflow to stockholders = 149,000 - 310,000

Cashflow to stockholder = -161,000

Cashflow from assets = Cashflow to creditors + cashflow to stockolders

Cashflow from assets = (-104,000) + ( - 161,000)

Cashflow from assets = -265,000

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