Finding operating and free cash flows consider the balance sheets and selected data from the income statement of keith corporation that follow a. calculate the firm's net operating profit after taxes (nopat) for the year ended december 31, 2015. b. calculate the firm's operating cash flow (ocf) for the year ended december 31, 2015. c. calculate the firm's free cash flow (fcf) for the year ended december 31, 2015. d. interpret, compare and contrast your cash flow estimate in parts (b) and (c).

Complete Question:

December 31

Assets 2015 2014

Cash $ 1,500 $ 1,000

Marketable securities 1,800 1,200

Accounts receivable 2,000 1,800

Inventories 2,900 2,800

Total current assets $ 8,200 $ 6,800

Gross fixed assets $29,500 $28,100

Less: Accumulated depreciation 14,700 13,100

Net fixed assets $14,800 $15,000

Total assets $23,000 $21,800

Liabilities and stockholders’ equity

Accounts payable $ 1,600 $ 1,500

Notes payable 2,800 2,200

Accruals 200 300

Total current liabilities $ 4,600 $ 4,000

Long-term debt 5,000 5,000

Total liabilities $ 9,600 $ 9,000

Common stock $10,000 $10,000

Retained earnings 3,400 2,800

Total stockholders’ equity $13,400 $12,800

Total liabilities and stockholders’ equity $23,000 $21,800

Keith Corporation Balance Sheets

ISBN 1Depreciation expense $1,600

Earnings before interest and taxes (EBIT) 2,700

Interest expense 367

Net profits after taxes 1,400

Tax rate 40%

Answer and Explanation:

A. net operating profit after taxes = NOPAT = EBIT x (1-Tax) = $2,700 x (1-40%) = $1,620

B. operating cash flow  = OCF = NOPAT + Depreciation = $1,620 + 1,600 = $3,220

C. free cash flow = FCF = OCF - Net fixed asset investment - Net current asset investment

 FCF = $3,220 - (29,500 - 28,100) - (8,200 - 6,800) - ($1,600 + 200 - 1,500 - 300) =  $420

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