Concept explainers
Use the following information for Taco Swell, Inc., for Problems 25 and 26 (assume the tax rate is 34 percent):
2014 | 2015 | |
Sales | $12,730 | $ 14,229 |
Depreciation | 1,827 | 1,910 |
Cost of goods sold | 4,377 | 5,178 |
Other expenses | 1,041 | 906 |
Interest | 854 | 1,019 |
Cash | 6,674 | 7,113 |
Accounts receivable | 8,837 | 10,371 |
Short-term notes payable | 1,288 | 1,262 |
Long-term debt | 22,352 | 27,099 |
Net fixed assets | 55,977 | 59,700 |
Accounts payable | 4,822 | 5,108 |
Inventory | 15,711 | 16,817 |
Dividends | 1,522 | 1,780 |
26. Calculating Cash Flow [LO4] For 2015, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.
To calculate: The cash flow from assets, the cash flow to creditors, and the cash flow to stockholders for the year 2015.
Introduction:
The cash flow refers to the difference between the money that comes in and goes out of the firm. The cash flow from assets refers to the difference between the revenues from the sale of assets and the money invested in purchasing the assets.
The cash flow to the creditors refers to the interest paid to the creditors minus the net fresh debt borrowed by the company. The cash flow to the stockholders refers to the dividend paid to the shareholders of the company minus the fresh equity raised by the company.
Answer to Problem 26QP
The cash flow from assets for the year 2015 is ($2,080.44). The cash flow to creditors for the year 2015 is ($3,728). The cash flow to stockholders’ for the year 2015 is $1,647.56.
Explanation of Solution
Given information:
Company T | ||
Particulars | 2014 | 2015 |
Sales | $12,730 | $14,229 |
Cost of goods sold | $4,377 | $5,178 |
Other expenses | $1,041 | $906 |
Depreciation | $1,827 | $1,910 |
Interest | $854 | $1,019 |
Dividends | $1,522 | $1,780 |
Cash | $6,674 | $7,113 |
Accounts receivable | $8,837 | $10,371 |
Inventory | $15,711 | $16,817 |
Net fixed assets | $55,977 | $59,700 |
Accounts payable | $4,822 | $5,108 |
Short-term notes payable | $1,288 | $1,262 |
Long-term debt | $22,352 | $27,099 |
Income statement for the year 2014 and 2015 based on the given information:
Company T | ||||
Income statement | ||||
Particulars | 2014 | 2015 | ||
Net sales | $12,730.00 | $14,229.00 | ||
Less: | ||||
Costs | $4,377.00 | $5,178.00 | ||
Other expenses | $1,041.00 | $906.00 | ||
Depreciation | $1,827.00 | $7,245.00 | $1,910.00 | $7,994.00 |
Earnings before interest and taxes | $5,485.00 | $6,235.00 | ||
Less: Interest paid | $854.00 | $1,019.00 | ||
Taxable income | $4,631.00 | $5,216.00 | ||
Less: Taxes ($4,631×34%) | $1,574.54 | $1,773.44 | ||
Net income (A) | $3,056.46 | $3,442.56 | ||
Dividends (B) | $1,522.00 | $1,780.00 | ||
Addition to retained earnings (A)−(B) | $1,534.46 | $1,662.56 |
Balance sheets for the year 2014 and 2015 based on the given information:
Prepare the balance sheet for 2014:
Company T | |||
Balance sheet | |||
For the year 2014 | |||
Assets | Amount | Liabilities | Amount |
Current assets: | Current liabilities: | ||
Cash | $6,674.00 | Accounts payable | $4,822.00 |
Accounts receivable | $8,837.00 | Short-term notes payable | $1,288.00 |
Inventory | $15,711.00 | Total | $6,110.00 |
Total (A) | $31,222.00 | ||
Long-term debt | $22,352.00 | ||
Tangible net fixed assets (B) | $55,977.00 | Shareholders' equity: | |
Common stock (Balance) | $57,202.54 | ||
Retained earnings | $1,534.46 | ||
Total | $58,737.00 | ||
Total assets (A)+(B) | $87,199.00 | Total liabilities and shareholders' equity | $87,199.00 |
Hence, the total assets of Company T is 2014 is $87,199.
Compute the common stock for 2014:
Hence, the common stock of Company T for 2014 is $57,202.54.
Prepare the balance sheet for 2015:
Company T | |||
Balance sheet | |||
For the year 2015 | |||
Assets | Amount | Liabilities | Amount |
Current assets: | Current liabilities: | ||
Cash | $7,113.00 | Accounts payable | $5,108.00 |
Accounts receivable | $10,371.00 | Short-term notes payable | $1,262.00 |
Inventory | $16,817.00 | Total | $6,370.00 |
Total (A) | $34,301.00 | ||
Long-term debt | $27,099.00 | ||
Tangible net fixed assets (B) | $59,700.00 | Shareholders' equity: | |
Common stock (Balance) | $57,334.98 | ||
Retained earnings | $3,197.02 | ||
Total | $60,532.00 | ||
Total assets (A)+(B) | $94,001.00 | Total liabilities and shareholders' equity | $94,001.00 |
Hence, the total assets of Company T is 2015 is $94,001.
Compute the retained earnings for 2015:
Hence, the retained earnings of Company T for 2015 are $3,197.02.
Compute the common stock for 2015:
Hence, the common stock of Company T for 2014 is $57,334.98.
Formulae:
The formula to calculate the net new borrowing and the cash flow to creditors:
The formula to calculate the new equity raised and the cash flow to stockholders:
The formula to calculate the cash flow from assets:
Compute the net new borrowing at the end of 2015:
The long-term debt in the balance sheet of Company T in 2014 was $22,352. The company had long-term debt worth $27,099 in 2015.
Hence, the net new borrowing is $4,747.
Compute the cash flow to creditors in 2015:
The interest expense of Company T in 2015 was $1,019.
Hence, the cash flow to creditors is ($3,728).
Compute the net new equity raised in 2015:
The common equity in 2014 is 57,202.54 (Refer to the balance sheet of 2014 in the solution) and the common equity in 2015 is $57,334.98 (Refer to the balance sheet of 2015 in the solution).
Hence, the net new equity raised is $132.44.
Compute the cash flow to stockholders’ in 2015:
The company paid $1,780 as dividends in the year 2015.
Hence, the cash flow to stockholders’ is $1,647.56.
Compute the cash flow from assets:
Hence, the cash flow from assets is ($2,080.44).
Want to see more full solutions like this?
Chapter 2 Solutions
Fundamentals of Corporate Finance
- Please solve this questionarrow_forwardRefer to the following mentioned data. (In millions) 2015 $26,512 13,307 2017 2016 $34,736 14,970 Net sales $30,142 Cost of products sold 13,615 Gross margin $19,766 $16,527 $13, 205 Required: a. Calculate the gross profit ratio for each of the past three years. (Round your answers to 2 decimal places.) 2017 2016 2015 b. Assume that Campbell's net sales for the first four months of 2018 totaled $12.15 billion. Calculate an estimated cost of goods sold and gross profit for the four months, using the gross profit ratio for 2017. (Round intermediate calculations to 2 decimal places. Enter your answers in millions rounded to nearest whole number (i.e.., 5,000,000 should be entered as 5).) Cost of goods sold million Gross profit millionarrow_forwardIncome Statement (2016) Credit Sales Cost of Goods Sold (800) Taxable Income Taxes (34%) Net Income Balance Sheet (2016) Cash Accounts Receivable 1,000 160 Accounts Payable 440 Short-Term Debt 600 Long-Term Debt 1.800 Common Stock 300 100 800 800 Retained Eamings 1.000 3.000 Inventory Fixed Assets Total 3.000 Total Dividend (33.33%) Retained Earnings Main assumplions Sales are expected to increase by 25% in 2017. "Cost of goods sold is a fraction of sales in the income statement. All other items are independent of sales. Each current asset and accounts payable are fractions of sales in the balance sheet All other items are independent of sales. If there is a need for external funding: o raise funds through short term debt first, but current ratio must not be smaller than 3. o raise the remaining funds through 50% long-term debt and 50% equity offering (common stock). What is the new cash conversion cycle in year 2017? (Let 1 xr = 360 davs) 1 months 3 months 5 months 7 monthsarrow_forward
- How do I calculate times interest earned for from this? (in millions) 2016 2015 Revenue Product $61,502 $75,956 Service 23,818 17,624 Total revenue 85,320 93,580 Cost of revenue Product 17,880 21,410 Service and other 14,900 11,628 Total cost of revenue 32,780 33,038 Gross margin 52,540 60,542 Research and development 11,988 12,046 Sales and marketing 14,697 15,713 General and administrative 4,563 4,611 Impairment, integration, and restructuring 1,110 10,011 Operating income 20,182 18,161 Dividends and interest income 903 766 Interest expense (1,243) (781) Other income (expense), net (91) 361 Income before taxes 19,751 18,507 Provision for income taxes 2,953 6,314 Net income $16,798 $ 12,193arrow_forwardShow Profit margin for two yearsarrow_forwardWhat is the quick ratio for 2017? A. 2.11 times B. .74 times C. 1.97 times D. 1.34 times E. .77 timesarrow_forward
- Shiplt Corporation reported the following rounded amounts (in millions): 2016 2015 $ 5,455 (315) $ 5,160 (320) Accounts Receivable Allowance for Doubtful Accounts Accounts Receivable, Net of $ 5,140 $ 4,840 Allowance Net Sales (assume all on credit) $41,000 $39,500 Required: 1. Determine the receivables turnover ratio and days to collect for 2016. (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 1 decimal place.) Receivables Turnover Ratio Days to Collect times days 2. Do the measures calculated in requirement 1 represent an improvement (or deterioration) in receivables turnover, compared to 2015 when the turnover was 9.7? O Improvement Declinearrow_forwardjituarrow_forwardUse the information below to answer questions 5, 6 and 7. 2013 2014 Sales $4,500 $4,775 Depreciation 750 1050 COGS 2422 2430 Interest 180 215 Cash 200 400 Accts Receivables 200 300 Notes Payable 100 150 Long-term debt 2956 1850 Net fixed assets 8000 9200 Accounts Payable 50 100 Inventory 1800 1600 Dividends 225 275 Tax rate 35% 35% What is the cash flow from operating activities?arrow_forward
- The following extracts of the financial statements of Wiggo have been obtained: 2015 Inventories $130,000 Receivables $80,000 Cash $10,000 Loan repayable 2018 $90,000 Deferred tax $14,000 Payables $70,000 Overdraft $34,000 What is the quick ratio of Wiggo?arrow_forwardAt January 1, 2024, Tarjee Inc. reported the following information on its statement of financial position: Accounts receivable $530,000 40,000 Allowance for expected credit losses ,40,000 During 2024, the company had the following summary transactions for receivables: Sales on account, $1,930,000; cost of goods sold, $1,061,500; return rate, 5% Selling price of goods returned, $76,000; cost of goods returned to inventory, $41,800 Collections of accounts receivable, $1,700,000 Write-offs of accounts receivable deemed uncollectible, $53,000 Collection of accounts previously written off as uncollectible, $12,000 After considering all of the above transactions, total estimated uncollectible accounts, $32,000 Prepare the journal entries to record each of the above summary transactions. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account…arrow_forwardSoftee Sodas and Patterson Beverage Company are two of the largest and most successful beverage companies in the world in terms of the products that they sell and their receivables management practices. To evaluate their ability to collect on credit sales, consider the following rounded amounts reported in their annual reports (amounts in millions). Softee Sodas Patterson Beverage Company Fiscal Year Ended: 2018 2017 2016 2018 2017 2016 Net Sales $ 42,160 $ 46,840 $ 48,600 $ 85,696 $ 86,240 $ 72,900 Accounts Receivable 4,490 4,810 5,030 8,400 8,310 7,930 Allowance for Doubtful Accounts 640 630 620 100 130 140 Accounts Receivable, Net of Allowance 3,850 4,180 4,410 8,300 8,180 7,790 Required: 1. Calculate the receivables turnover ratios and days to collect for Softee Sodas and Patterson Beverage Company for 2018 and 2017. 2-a. Which of the companies was quicker to convert its receivables into cash in 2018? 2-b. Which of the companies was quicker to convert its receivables into cash in…arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College