Question

Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $264,000; Costs = $170,000; Other expenses = $7,900; Depreciation expense = $14,500; Interest expense = $13,300; Taxes = $20,405; Dividends = $10,000. In addition, you’re told that the firm issued $4,800 in new equity during 2018 and redeemed $3,300 in outstanding long-term debt. a. What is the 2018 operating cash flow

Answer 1

Answer:

The 2018 operating cash flow is $86,100.

Explanation:

Operating Cash flow is different from Income as it only involves movement in cash.

Thus our first step is to find the Operating Income then adjust it with non-cash items to reach an Operating Cash flow amount.

Sales                             = $264,000

Less Costs                    = ($170,000)

Less Other expenses   =    ($7,900)

Depreciation expense =   ($14,500)

Operating Income        =     $71,600

Adjust for non-cash item - depreciation

Operating Income         =   $71,600

Add back depreciation =   $14,500

Operating Cash flow     =   $86,100

Interest expenses and taxes are not part of operating income as they arise out of secondary activities of the company.

Conclusion :

The 2018 operating cash flow is $86,100.