Calculate free cash flow (cash flow from assets) for 2002, and 2003.

Exhibit 1 Operating Statements for Years Ending December 31, 20012003, and for First Quarter 2004 (thousands of dollars)

2001

2002

2003

First Quarter 2004

Net sales

$1,697

$2,013

$2,694

$ 718^a

Cost of goods sold

Beginning inventory

183

239

326

418

Purchases

1,278

1,524

2,042

660

$1,461

$1,763

$2,368

$1,078

Ending inventory

239

326

418

556

Total cost of goods sold

$1,222

$1,437

$1,950

$522

Gross profit

475

576

744

196

Operating expense^b

425

515

658

175

Interest expense

13

20

33

10

Net income before taxes

$37

$41

$53

$11

Provision for income taxes

6

7

9

2

Net income

$31

$34

$44

$9

Source: Case author.

^aIn the first quarter of 2003 sales were $698,000 and net income was $7,000.

^bOperating expenses include a cash salary for Mark Cartwright of $75,000 in 2001, $85,000 in 2002, $95,000 in 2003, and $22,000 in the first quarter of 2004. Cartwright also received some of the perquisites commonly taken by owners of privately held businesses.

Exhibit 2 Balance Sheets at December 31, 20012003, and March 31, 2004 (thousands of dollars)
	2001	2002	2003	First Quarter 2004
Cash	$58	$48	$41	$31
Accounts receivable, net	171	222	317	345
Inventory	239	326	418	556
Current assets	$468	$596	$776	$932
Property, net	126	140	157	162
Total assets	$594	$736	$933	$1,094
Notes payable, bank	$ --	$146	$233	$247
Notes payable, Stark	105	--	--	--
Notes payable, trade	--	--	--	157
Accounts payable	124	192	256	243
Accrued expenses	24	30	39	36
Long-term debt, current portion	7	7	7	7
Current liabilities	$260	$375	$535	$690
Long-term debt	64	57	50	47
Total liabilities	$324	$432	$585	$737
Net worth	270	304	348	357
Total liabilities and net worth	$594	$736	$933	$1,094