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Homer & Son Grease Recovery Company. Free Cash Flow Example. Homer & Son Grease Recovery Co. Example. Find Free Cash Flow from Operating Perspective. Inflows & outflows from company’s perspective.

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homer son grease recovery co example
Homer & Son Grease Recovery Co. Example
  • Find Free Cash Flow from Operating Perspective.
    • Inflows & outflows from company’s perspective.
    • Need operating income, that year’s depreciation, cash taxes paid, change in current assets during year, change in non-interest bearing current liabilities, & change in gross fixed and other assets.
  • Find Free Cash Flow from Financing Perspective.
    • Inflows & outflows from investors’ perspective.
    • Need interest expense, dividends paid (given or EAT minus change in retained earnings), change in interest bearing debt, & change in stock accounts (except retained earnings).
operating free cash flow after tax cash flow from operations
Operating Free Cash Flow : After-tax cash flow from operations
  • Operating Perspective = after-tax cash flow from operations – increase in net operating working capital – increase in gross fixed and other assets

After-tax cash flow from operations:

Operating Income (EBIT) 180

+Depreciation 100

-Cash Taxes 60

after-tax cash flow from operations 220

operating free cash flow increase in net operating working capital
Operating Free Cash Flow : increase in net operating working capital
  • Increase in net operating working capital = change in current assets – change in non-interest bearing current liabilities

Change in Total Current Assets 100

-Change in non-interest bearing current liabilities

change in accounts payable 100

+change in accrued expenses-50

change in non-interest current liabilities 50

increase in net operating working capital 50

operating free cash flow increase in gross fixed and other assets
Operating Free Cash Flow : increase in gross fixed and other assets
  • Increase in gross fixed and other assets:

Change in gross fixed assets 200

+Change in other assets-100

increase in gross fixed and other assets 100

total operating free cash flow
Total Operating Free Cash Flow

After-tax cash flow from operations 220

Less increase in net oper. working capital 50

Less increase in fixed & other assets 100

Operating Free Cash Flow 70

financing free cash flow
Financing Free Cash Flow

Interest Expense 30

+Dividends 40

-Change in short-term debt 50

-Change in long-term debt -50

- Change in common stock 0

Free Cash Flow from Financing 70

homer son grease recovery free cf summary
Homer & Son Grease Recovery Free CF Summary
  • Operating Free Cash Flow
    • After-Tax CF from operations 220
    • Less inc. in net oper working cap. 50
    • Less inc. in fixed & other assets 100
    • Operating Free Cash Flow 70
  • Financing Free Cash Flow 70