Accounting data is used to generate a firm's financial statements, but a firm's intrinsic value is based on its free cash flows, which are the cash flows available for distribution to the company's investors after the company has made all of the investments necessary to sustain its ongoing operations. Consider the following case: J&H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate its potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. • Last year, J&H Corp. reported a book value of $350,000 in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297,500 of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable outstanding, and there were no changes in the company's accounts payable during the year. • The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560,000 for its operating long-term assets last year. Income Statement For the Year Ended on December 31 J&H Corp. Industry Average Net sales $37,000,000 $46,250,000 Operating costs, except depreciation and amortization 29,600,000 37,000,000 Depreciation and amortization 1,480,000 1,850,000 Total operating costs 31,080,000 38,850,000 J&H Corp. Industry Average Net sales $37,000,000 $46,250,000 Operating costs, except depreciation and amortization 29,600,000 37,000,000 Depreciation and amortization 1,480,000 1,850,000 Total operating costs 31,080,000 38,850,000 Operating income (or EBIT) $5,920,000 $7,400,000 Less: Interest expense 592,000 1,110,000 Earnings before taxes (EBT) $5,328,000 $6,290,000 Less: Taxes (40%) 2,131,200 2,516,000 Net income $3,196,800 $3,774,000 Based on the information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Complete the following statements in his report. If your answer is negative, use the minus sign. Statement #1: J&H Corp.'s NOPAT is $ , which is than the industry average of $ Statement #2: The company has $ in operating assets and $ in operating liabilities. Statement #3: J&H Corp. has $ in noncash charges, and a net cash flow of $ Statement #4: J&H Corp.'s total , which consists of its net operating working capital and its total investment in operating long-term assets, is equal to $

Accounting data is used to generate a firm's financial statements, but a firm's intrinsic value is based on its free cash flows, which are the cash flows available for distribution to the company's investors after the company has made all of the investments necessary to sustain its ongoing operations. Consider the following case: J&H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate its potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. • Last year, J&H Corp. reported a book value of $350,000 in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297,500 of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable outstanding, and there were no changes in the company's accounts payable during the year. • The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560,000 for its operating long-term assets last year. Income Statement For the Year Ended on December 31 J&H Corp. Industry Average Net sales $37,000,000 $46,250,000 Operating costs, except depreciation and amortization 29,600,000 37,000,000 Depreciation and amortization 1,480,000 1,850,000 Total operating costs 31,080,000 38,850,000 J&H Corp. Industry Average Net sales $37,000,000 $46,250,000 Operating costs, except depreciation and amortization 29,600,000 37,000,000 Depreciation and amortization 1,480,000 1,850,000 Total operating costs 31,080,000 38,850,000 Operating income (or EBIT) $5,920,000 $7,400,000 Less: Interest expense 592,000 1,110,000 Earnings before taxes (EBT) $5,328,000 $6,290,000 Less: Taxes (40%) 2,131,200 2,516,000 Net income $3,196,800 $3,774,000 Based on the information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Complete the following statements in his report. If your answer is negative, use the minus sign. Statement #1: J&H Corp.'s NOPAT is $ , which is than the industry average of $ Statement #2: The company has $ in operating assets and $ in operating liabilities. Statement #3: J&H Corp. has $ in noncash charges, and a net cash flow of $ Statement #4: J&H Corp.'s total , which consists of its net operating working capital and its total investment in operating long-term assets, is equal to $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter15: Statement Of Cash Flows

Section: Chapter Questions

Problem 4TIF

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