question archive Gustav's best friend, Garfield, owns a lasagna factory
Gustav's best friend, Garfield, owns a lasagna factory
Subject:FinancePrice:2.84 Bought6
Gustav's best friend, Garfield, owns a lasagna factory. Garfield's financial skills are not very strong, so he asked Gustav to take a look at his financials. Here is the information Garfield provided to Gustav for 2019.
- EBIT was $7417;
- Depreciation was $2666;
- Tax rate was 0.35
December 31, 2018
December 31, 2019
Current Operating Assets
$2940
$3528
Net Fixed Assets
$16560
$18840
Current Operating Liabilities
$2592
$2484
Compute the free cash flow for this company.
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Free cash flow:
= Net Operating cash flow - Capital Expenditure - preference dividend
= $10601 - $4946 - 0
= $5655
Workings
Net Operating cash flow
= EBIT - Taxes - change in working capital
= $7417 - ($7417×0.35) + $588*
= $7417 - $2596 + $588
= $10601
*Change in working capital:
= working capital of 2019 - working capital 2018
= [($3528 - $2592) - ($2940 - $2592)]
= $936 - $348
= $588
Capital Expenditure
= $18840 - ($16560 - $2666)
= $4946
Step-by-step explanation
Working capital
= Current Assets - Current liabilities
