fm3 15 - What are operating current liabilities? How much...

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Mini Case: 3 - 15 b. What do you conclude from the statement of cash flows? Answer: Net CF from operations = -$503,936, because of negative net income and increases in working capital. The firm spent $711,950 on FA. The firm borrowed heavily and sold some short-term investments to meet its cash requirements. Even after borrowing, the cash account fell by $1,718. c. What is free cash flow? Why is it important? What are the five uses of FCF? Answer: FCF is the amount of cash available from operations for distribution to all investors (including stockholders and debtholders) after making the necessary investments to support operations. A company’s value depends upon the amount of FCF it can generate. 1. Pay interest on debt. 2. Pay back principal on debt. 3. Pay dividends. 4. Buy back stock. 5. Buy nonoperating assets (e.g., marketable securities, investments in other companies, etc.) d. What are operating current assets?
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Unformatted text preview: What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have? Answer: Operating current assets are the CA needed to support operations. OP CA include: cash, inventory, receivables. OP CA exclude: short-term investments, because these are not a part of operations. Operating current liabilities are the CL resulting as a normal part of operations. OP CL include: accounts payable and accruals. OP CA exclude: notes payable, because this is a source of financing, not a part of operations. NOWC = operating CA operating CL NOWC 07 = ($7,282 + $632,160 + $1,287,360) - ($324,000 + $284,960) = $1,317,842. NOWC 06 = $793,800. Total operating working capital = NOWC + net fixed assets. Operating capital in 2007 = $1,317,842 + $939,790 = $2,257,632. Operating capital in 2006 = $1,138,600....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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