Define each of the following terms:
a. Annual report; balance sheet; income statement; statement of cash flows; statement
of retained earnings
b. Common stockholders’ equity, or net worth; retained earnings; net working
capital
c. Depreciation; tangible assets; amortization; intangible assets; EBITDA
d. Net cash flow; accounting profit
e. Operating assets; nonoperating assets
f. Total operating capital; net operating working capital
g. Net operating profit after taxes (NOPAT); operating cash flow; free cash flow
h. Market Value Added (MVA); Economic Value Added (EVA)
i. Progressive tax
j. Capital gain
k. S corporation; C corporation
ST-2 Net income and cash flow Last year Rattner Robotics had $5 million in operating
income (EBIT). Its depreciation expense was $1 million; its interest expense was $1
million; and its corporate tax rate was 40 percent. At year-end it had $14 million in
current assets, $4 million in non-interest-bearing current liabilities, and $15 million in
net plant and equipment. Assume that Rattner’s only noncash item was depreciation.
a. What was the company’s net income?
b. What was its net cash flow?
c. What was its net operating profit after taxes (NOPAT)?
d. What was its operating cash flow?
e. What was its net operating working capital (NOWC)?
f. If operating capital at the end of the previous year was $24 million, what was the
company’s free cash flow (FCF) for the year?
g. If the firm had $4.5 million in retained earnings at the beginning of the year and
paid out a total dividend of $1.2 million, what was its retained earnings at the end
of the year?
