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Stockholders and the Free Cash Flow to Equity Calculation

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Why should stockholders in a corporation be especially concerned about the free cash flow to equity calculation?

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Stockholders in a corporation should be especially concerned about the free cash flow to equity calculation because it measures how much cash a company can pay out to its stockholders after all expenses, taxes, preferred stock dividends, reinvestment and debt repayment. Although the free cash flow to ...

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Financial Ratios Calculations


The Comparative statements of Jack Frost Company are presented here.

Jack Frost Company
Income Statement
For the year ended December 31

2007 2008

Net Sales $1,890,540 1,750,500
Cost of Goods sold 1,058,540 996,000

Gross Profit 832,000 754,500
Selling & admin. Exp. 506,000 275,500

Income from operations 326,000 275,500
Other expenses and losses
Interest expense 25,000 19,000

Income before income taxes 301,000 256,500
Income tax expense 86,000 77,000

Net Income 215,000 179,500

Jack Frost
Balance Sheet
December 31

Assets 2007 2008

Current assets
Cash 60,100 64,200
Short term Inv 74,000 50,000
Accounts Receivable 107,800 102,800
Inventory 133,000 115,500
Total Current Assets 374,900 332,500

Liabilities and Stockholders Equity
Current Liabilities
Accounts payable 160,000 145,400
Income tax payable 43,500 42,000
Total current Liabilities 203,500 187,400
Bonds payable 210,000 200,000
Total Liabilities 413,500 387,400
Stockholders Equity
Common Stock ($5 per share) 290,000 300,000
Retained earnings 286,000 165,400
Total Stockholders equity 576,000 465,400

Total Liabilities and 990,200 852,000
Stockholders equity

All sales were on account. Net cash provided by operating activities for 2007 was $240,000. Capital expenditures were $120,000 and cash dividends were $80,000.
Complete the following ratios for 2007:

A) Earnings per share H) Days in Inventory
B) Return on common stockholders equity I) Times interest earned
C) Return on assets J) Assets turnover
D) Current ratio K) Debt to total assets
E) Receivable turnover L) Current cash debt coverage
F) Average collection period M) Cash debt coverage
G) Inventory turnover N) Free cash flow

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