Question

During the past year, a company had cash flow to creditors, an operating cash flow, and net capital spending of $30,591, $69,573, and $30,460, respectively. The net working capital at the beginning of the year was $12,352 and it was $14,650 at the end of the year. What was the company's cash flow to stockholders during the year?

Answer 1

To find the company's cash flow to stockholders during the year, we can use the cash flow framework, specifically the cash flow from assets equation:

\[
\text{Cash Flow from Assets} = \text{Operating Cash Flow} - \text{Net Capital Spending} - \text{Change in NWC}
\]

Where:
- Cash Flow from Assets is the total cash flow generated by the company that is available to both creditors and stockholders.
- Operating Cash Flow (OCF) = $69,573
- Net Capital Spending (NCS) = $30,460
- Change in Net Working Capital (NWC) = Ending NWC - Beginning NWC = $14,650 - $12,352

First, we calculate the change in NWC:

\[
\text{Change in NWC} = 14,650 - 12,352 = 2,298
\]

Now we substitute these values into the cash flow from assets equation:

\[
\text{Cash Flow from Assets} = 69,573 - 30,460 - 2,298
\]

Calculating this:

\[
\text{Cash Flow from Assets} = 69,573 - 30,460 - 2,298 = 36,815
\]

Now, we need to calculate the cash flow to stockholders (CFSH). The cash flow to stockholders can be found by:

\[
\text{Cash Flow to Stockholders} = \text{Cash Flow from Assets} - \text{Cash Flow to Creditors}
\]

Where:
- Cash Flow to Creditors = $30,591

Now we can substitute the values:

\[
\text{Cash Flow to Stockholders} = 36,815 - 30,591
\]

Calculating this:

\[
\text{Cash Flow to Stockholders} = 6,224
\]

Thus, the company's cash flow to stockholders during the year was **$6,224**.