13. Net cash flow

How much cash does the firm actually have?

You are the CFO of ABC Corp. You are looking to hire a financial analyst, and youve given an assignment to two short-listed candidates. Youve given the following information to the job applicants:

	The company reported net sales of $62,500,000. Assume that there were no noncash sales.
	Operating costs (excluding depreciation and amortization) were 65% of the companys total revenues.
	Depreciation and amortization charges were 5% of total sales.
	Interest charges were 15% of earnings before interest and taxes (EBIT) with a tax rate of 40%.

Youve asked the candidates to give you a number that best represents the cash flow situation of the company.

KURT: submits a report stating that the firm has $12,687,500 in cash.

JAKE: submits a report stating that the firm has $9,562,500 in cash.

Based on the information given to them, which applicant has provided a better estimate of the companys current cash flows? Check all that apply.

Kurt

Jake

Your follow-up question to both Kurt and Jake asks them to think about the difference between their cash flow estimates. The most likely reason for the discrepancy is that failed to:

Add back the companys non-cash expenses to ABCs net income.

Subtract the companys depreciation and amortization expenses from ABCs EBIT.