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

Appendix 1 Activity Statements for the Years Ended December 31, 2001–2003 and the First Quarter of 2004 (thousand dollars)

2001

2002

2003

2004 First Quarter

net sales

$1,697 dollars

2,013 dollars

$2,694

718 ^dollars

cost of goods sold

Initial inventory

183

239

326

418

acquisitions

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 dollars

$1,437

$1,950

$522 dollars

Gross profit

475

576

744

196

operating expense ^b

425

515

658

175

interest expense

13

20

33

10

Net profit before tax

37 dollars

41 dollars

53 dollars

11 dollars

Income tax provision

6

7

9

2

Net income

31 dollars

34 dollars

44 dollars

9 dollars

Source: Case writer.

^a First quarter 2003 sales were $698,000 and net income was $7,000.

^b Operating expenses include Mark Cartwright's cash salary 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 bonuses commonly received by owners of businesses in the private sector.

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