# Hailey, Inc., has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest...

## Question:

Hailey, Inc., has sales of {eq}\$19,570 {/eq}, costs of {eq}\$9,460 {/eq}, depreciation expense of {eq}\$2,130 {/eq}, and interest expense of {eq}\$1,620 {/eq}. Assume the tax rate is {eq}35 \% {/eq}. What is the operating cash flow, or OCF?

## Operating Cash Flow:

The cash flow statement is a critical part of the financial statements. The operating cash flow shows the cash generated from the core operations of the business. When a company has robust operating cash flows, capital expenditure can be funded through internal cash flows than a dilution of equity or leveraging.

## Answer and Explanation:

.

Given -

- Sales = $19,570
- Cost = $9,460
- Depreciation = $2,130

Therefore,

- Earnings Before Interest and Tax = Sales - Cost - Depreciation
- Earnings Before Interest and Tax = 19,570 - 9,460 - 2,130
- Earnings Before Interest and Tax =
**$7,980**

Interest Expense = $1,620

- Earnings Before Tax = Earnings Before Interest and Tax - Interest Expense
- Earnings Before Tax = 7,980 - 1,620
- Earnings Before Tax =
**$6,360**

Tax Rate = 35%

- Net Income = Earnings Before Tax * (1 - Tax Rate )
- Net Income = 6,360 * (1 - 0.35 )
- Net Income =
**$4,134**

Once we have the net income, the operating cash flow can be calculated as follows -

- Operating Cash Flow = Net Income + Depreciation
- Operating Cash Flow = 4,134 + 2,130
- Operating Cash Flow =
**$6,264**

#### Ask a question

Our experts can answer your tough homework and study questions.

Ask a question Ask a question#### Search Answers

#### Learn more about this topic:

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4