ACTIVITY 1 FINANCIAL MANAGEMENT MBA 2

2019 2018
Cash 350,000 150,000
Accounts Receivable 840,000 580,000
Merchandise Inventory 660,000 420,000
Prepaid Expenses 50,000 100,000
Long term Investment 220,000 200,000
Property, Plant and Equipment 1,130,000 600,000
Accumulated Depreciation 110,000 50,000
Accounts Payable 530,000 440,000
Interest Payable 140,000 100,000
Accrued Expenses 140,000 130,000
Dividends Payable 70,000 0
Notes Payable - Long term 500,000 0
Share Capital 1,200,000 900,000
Retained Earnings (year-end) 560,000 430,000
Sales 6,400,000 4,000,000
Cost of Goods Sold 5,000,000 3,200,000
Operating Expenses 1,000,000 520,000
Interest Expense 60,000 0
Income Before Tax 340,000 280,000
Income Tax (30%) 102,000 84,000
Net Income 238,000 196,000

Comparative Balance Sheet

Change
2019 2018 increase/
(decrease)
Assets
Cash 350,000 150,000 200,000
Accounts Receivable 840,000 580,000 260,000
Merchandise Inventory 660,000 420,000 240,000
Prepaid Expenses 50,000 100,000 (50,000)
Long Term Investment 220,000 200,000 20,000
Property, Plant and Equipment 1,130,000 600,000 530,000
Accumulated Depreciation (110,000) (50,000) (60,000)
Total Assets 3,140,000 2,000,000 1,140,000
Liabilities and Equity
Liabilities:
Accounts Payable 530,000 440,000 90,000
Interest Payable 140,000 100,000 40,000
Accrued Expenses 140,000 130,000 10,000
Dividends Payable 70,000 0 70,000
Notes Payable - Long term 500,000 0 500,000
Total Liabilities 1,380,000 670,000 710,000
Equity:
Share Capital 1,200,000 900,000 300,000
Retained Earnings (year-end) 560,000 430,000 130,000
Total Equity 1,760,000 1,330,000 430,000
Total Liabilities and Equity 3,140,000 2,000,000 1,140,000

Income Statement
2019 2018
Sales 6,400,000 4,000,000
Cost of Goods Sold 5,000,000 3,200,000
 Gross 1,400,000 800,000
Operating Expenses 1,000,000 520,000
Interest Expense 60,000 0
Total Expense 1,060,000 520,000
Gross – Total Expense 340,000 280,000
Income Before Tax 340,000 280,000
Income Tax (30%) 102,000 84,000
Net Income 238,000 196,000

Part 1. CASH FLOW STATEMENT FOR 2019, INDIRECT METHOD

CASH FLOW STATEMENT FOR 2019

CASH FLOW FROM OPERATING ACTIVITIES
Net Income Before Tax 340,000
Adjustments:
Depreciation 60,000
Interest Expense 60,000
Operating income before working capital change 460,000
(260,000
Increase in accounts receivable )
(240,000
Increase in MI )
Decrease in prepayments 50,000
Increase in accounts payable 90,000
Increase in A/E 10,000
110,000
Interest Paid (20,000)
(102,000
Income Taxes Paid )
Net Cash used in operating activities (12,000)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Additional Investment (20,000)
(530,000
Purchase of Additional PPE )
(550,000
Net Cash used in investing activities )
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 500,000
Dividends paid (38,000)
Proceeds from issuance of share capital 300,000
Net cash from financing activities 762,000
Net Increase in cash during the year 200,000
Cash, Beginning 150,000
Cash, Ending 350,000

Part 2. PERFORMANCE MEASURES FINANCIAL STATEMENTS

1. WORKING CAPITAL (WC)
WC = Current Assets

CURRENTS ASSETS:
Cash 350,000
Accounts Receivables 840,000
Merchandise Inventory 660,000
Prepaid Expenses 50,000
Total Current Assets 1,900,000
2. NET WORKING CAPITAL (NWC)
NWC = Current Assets – Current Liabilities

CURRENTS ASSETS:
Cash 350,000
Accounts Receivables 840,000
Merchandise Inventory 660,000
Prepaid Expenses 50,000 1,900,000
CURRENT LIABILITIES:
Accounts Payable 530,000
Interest Payable 140,000
Accrued Expenses 140,000
Dividends Payable 70,000 880,000
NET WORKING CAPITAL 1,020,000

3. NET OPERATING WORKING CAPITAL (NOWC)

NOWC = Current Assets - Non-Interest-Bearing Current Liabilities

CURRENTS ASSETS:
Cash 350,000
Accounts Receivables 840,000
Merchandise Inventory 660,000
Prepaid Expenses 50,000 1,900,000
NON-INTEREST-BEARING CURRENT LIABILITIES:
Accounts Payable 530,000
Accrued Expenses 140,000 670,000
NET OPERTATING WORKING CAPITAL 1,230,000

4. OPERATING CAPITAL (OC)

OC = NOWC + Net Fixed Assets

CURRENTS ASSETS:
Cash 350,000
Accounts Receivables 840,000
Merchandise Inventory 660,000
Prepaid Expenses 50,000 1,900,000
NON-INTEREST-BEARING CURRENT LIABILITIES:
Accounts Payable 530,000
Accrued Expenses 140,000 670,000
NET OPERTATING WORKING CAPITAL 1,230,000
FIXED ASSETS:
Long-term Investment 220,000
Property, Plant and Equipment 1,130,000 1,350,000
OPERATING CAPITAL 2,580,000

5. NET OPERATING PROFIT AFTER TAX (NOPAT)

NOPAT = EBIT (1 - Tax Rate)
= 340,000 (1 - 30%)
= 340,000(0.7)
= 238,000

6. NET CASH FLOW (NCF)

 NCF = Net Income + Depreciation & Amortization
= 238,000 + 110,000
= 348,000

7. OPERATING CASH FLOW (OCF)

OCF = NOPAT + Depreciation & Amortization
= 238,000 + 110,000
= 348,000

8. FREE CASH FLOW (FCF)

FCF = OCF - (Capital Expenditure + NOWC)

OPERTATING CASH FLOW 348,000

CAPITAL EXPENDITURE
Long-term Investment 220,000
Property, Plant and Equipment 1,130,000 1,350,000
NET WORKING CAPITAL
CURRENTS ASSETS:
Cash 350,000
Accounts Receivables 840,000
Merchandise Inventory 660,000
Prepaid Expenses 50,000 1,900,000
NON-INTEREST-BEARING CURRENT
LIABILITIES:
Accounts Payable 530,000
Accrued Expenses 140,000 670,000 1,230,000 2,580,000
FREE CASH FLOW (2,232,000)

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