Cash Flow

P2-2, Cash Flow Analysis FI360

Given the balance sheets and selected data from the income statement of SMG Industries that follow, answer parts (a)-(c)

a. Calculate the firms operating cash flow (ocf) for the year ended December 31, 2009, using Equation 2.1

OCF=EBIT-taxes +depreciation

4,500-1,300+1,600= 4,800

b. Calculate the firm's free cash flow (fcf) for the for the year ended December 31, 2009, using Equation 2.2

FCF = OCF - FA - ( CA - A/P - accurals)

FA = 31,500 – 30,100 = 1400

CA = 33,000 – 31,800 = 1200

A/P = 3,600 – 3,500 = 100

accruals = 1,200 – 1,300 = -100

FCF = 4,800 – 1400 – (1,200 – 100 -100)

= 4,800 – 1,400 – 1000

= 2,400

c. Interpret, compare, and contrast your cash flow estimates in parts (a) and (b).

The Operating Cash Flow for 2008 thru 2009 has increased by $300. The Free Cash Flow shows an increase of $2400 despite the $100 deficit in the accrual for the 12/31/09 year.

P2-3

Classify each of the following items as an inflow (I) or an outflow (O) of cash or (N)

Item Change ($)

Cash +600 (I)

Accounts Payable -1200 (O)

Notes Payable +800 (O)

Long-term debt -2500 (O)

Inventory