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Financial Statements and Cash Flow Analysis

In: Business and Management

Submitted By jhatch29
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Chapter 2 Mini Case: “Financial Statement and Cash Flow Analysis”
Jennifer L. Hatch
Professor Edward Strafaci
Advanced Financial Management
January 28, 2015

Chapter 2 Mini Case: “Financial Statement and Cash Flow Analysis”
Introduction
According to the mini case, Jaeden Industries has provided their account balances as of December 31, 2010. In order to determine the company’s free cash flow, liquidity, debt and profitability ratios, and market ratios, the following are required: dividend payout ratio of 25%, tax rate of 34%, stock price on December 31, 2009 was $42.39 and the stock price on December 31, 2010 was $56.82. Below are the calculations required in order to obtain a cash flow analysis on Jaeden Industries.
Jaeden’s Free Cash Flow Free cash flow involves the following acronyms that are to be applied to the first party of the formula: net operating profits after taxes (NOPAT), earning before interest and taxes (EBIT), T = corporate tax rate, and operating cash flow (OCF). In order to calculate the free cash flow (FCF), two steps are required. The first step is to calculate the OCF, and then the free cash flow can be determined.
Operating Cash Flow
OCF = [EBIT x (1 – T)] + Depreciation
OCF = [$13,119,000 x (1 - .34) + $700,000
OCF = [$13,119,000 x .66] + $700,000
OCF = $8,658,540 + $700,000
OCF = $9,358,540
Free Cash Flow
In order to determine the second part of the calculation, the following information is required: change in gross fixed assets (ΔFA), change in current assets (ΔCA), change in accounts payable (ΔAP), and change in accrued expenses (Δ accruals). Since Jaeden’s Industries 2010 Balance Sheet is not completed, the current assets should be determined. Therefore, the sum of the firms’ cash, market securities, accounts receivable, and inventories for 2010 is $15,066,000.
ΔFA = $14,811,000 - $11,879,000 = $2,932,000...

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