Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?
Operating Cash Flow:
Operating cash flow (OCF) is the flow of cash generated from a firm's operating activities. The cash flow is different from the cash flow because some revenue items or cost items are non-cash.
Answer and Explanation:
We can use the following formula to compute the operating cash flow:
- OCF = net income + depreciation expense
- OCF = (sales - costs - depreciation expense - interest expense) *(1 - tax rate) + depreciation expense
- OCF = (34,630 - 10,340 - 2,520 - 1,750)*(1 - 35%) + 2,520
- OCF = 15,533
That is, the operating cash flow is $15,533.
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from Finance 101: Principles of FinanceChapter 10 / Lesson 4