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Ratios & Cash Flows

I am not understanding how to obtain the OCF. I know that you have to add the depreciation expense and subtract the tax, but I am very confused. I know that you must divide the current assets by the current liabilities but when I do it, it doesn't work. Please help.

Hammett, Inc., has sales of $19,720, costs of $9,310, depreciation expense of $1,980, and interest expense of $1,470. Assume the tax rate is 40 percent.

What is the operating cash flow?

Hammett, Inc., has net working capital of $1,090, current liabilities of $6,750, and inventory of $1,160.

What is the current ratio? Round your answer to 2 decimal places (e.g., 3.16).
What is the quick ratio? Round your answer to 2 decimal places (e.g., 3.16).

Solution Preview

What is the operating cash flow?

-- The operating cash flow = earnings before interest and income taxes + depreciation
minus income taxes.

19720 - 9310 - 1980 - 1470 = 6960 x 40% = 2784. <-- this gives you their net income and income tax expense. The net income = sales - expenses - depreciation - interest expense. The total of sales ...

Solution Summary

This solution shows the student how to calculate operating cash flow, the current ratio, and the quick ratio based on the information given.

$2.19

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