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The 2015 income statement for Duffy's Pest Control shows that depreciation expense was $ 201...

Question:

The 2015 income statement for Duffy's Pest Control shows that depreciation expense was $ 201 million, EBIT was $ 512 million, and the tax rate was 30 percent. At the beginning of the year, the balance of gross fixed assets was $ 1,582 million and net operating working capital was $ 421 million. At the end of the year, gross fixed assets were $ 1,833 million. Duffy's free cash flow for the year was $ 425 million. Calculate the end-of-year balance for net operating working capital.

Operating Working Capital:

The difference between current assets and current liabilities is called net operating working capital. Working capital consists of accounts that the company needs for its operations, such as accounts receivable and accounts payable.

Answer and Explanation:

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Let,

  • FCF = free cash flow
  • OCF = operating cash flow
  • EBIT = earnings before interest and tax
  • T = tax rate
  • D = depreciation
  • NCS = net capital spending...

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How to Calculate Net Working Capital: Definition & Formula

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Chapter 5 / Lesson 22
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To operate effectively, businesses must be able to pay their bills as they become due. The best way to determine a business' ability to pay its bills is to calculate its net working capital. Learn what net working capital is and how to calculate it in this lesson.


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