Accounting data is used to generate a firms financial statements, but a firms intrinsic value is based on its free cash flows, which are the cash flows available for distribution to the companys investors after the company has made all of the investments necessary to sustain its ongoing operations.

Consider the following case:

J&H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on the companys operational efficiency and estimate its potential investment in working capital. He has the income statement from last year and the following information from the companys financial reports as well as some industry averages.

	Last year, J&H Corp. reported a book value of $500,000 in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory.
	The company reported $425,000 of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable outstanding, and there were no changes in the companys accounts payable during the year.
	The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $800,000 for its operating long-term assets last year.

Income Statement For the Year Ended on December 31

	J&H Corp.	Industry Average
Net sales	$47,000,000	$58,750,000
Operating costs, except depreciation and amortization	37,600,000	47,000,000
Depreciation and amortization	1,880,000	2,350,000
Total operating costs	39,480,000	49,350,000
Operating income (or EBIT)	$7,520,000	$9,400,000
Less: Interest expense	752,000	1,410,000
Earnings before taxes (EBT)	$6,768,000	$7,990,000
Less: Taxes (40%)	2,707,200	3,196,000
Net income	$4,060,800	$4,794,000

Based on the information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan.

Complete the following statements in his report. If your answer is negative, use the minus sign.

	Statement #1: J&H Corp.s NOPAT is _____ , which is _____ than the industry average of _____ .
	Statement #2: The company is using _____ in net operating working capital (NOWC).
	Statement #3: J&H Corp. is generating _____ in net cash flow from its operations and an accounting profit of _____ .
	Statement #4: The firm uses _____ of total net operating capital to run the business. This value is computed as the _____ of J&H Corp.s net operating working capital and its _____ .