2014 2013
Net cash flow from operating activities $476,000 $455,000
Net cash flow used for investing activities (427,000) (378,000)
Net cash flow used for financing activities (42,000) (58,800)
Eighty percent of the net cash flow used for investing activities was used to replace existing capacity.
a. Determine Dillin’s free cash flow for both years.
b. Has Dillin’s free cash flow improved or declined from 2013 to 2014?
Answer:
a. Net cash flow from operating activities………………… $ 476,000 $ 455,000
Less: Investments in fixed assets
to replace existing capacity………………………… (341,600)* (302,400) **
Free cash flow………………………………………………… $ 134,400 $ 152,600
* 80% × $427,000
** 80% × $378,000
b. The change from $152,600 to $134,400 indicates a negative trend.