Free Cash Flow
Omnicron Inc. reported the following on the company’s cash flow statement in 2012 and 2011:
Seventy-five percent of the cash flow used for investing activities was used to replace existing capacity.
a. Determine Omnicron’s free cash flow.
b. Has Omnicron’s free cash flow improved or declined from 2011 to 2012?
2012 | 2011 | |||
Net cash flow from operating activities | $140,000 | $120,000 | ||
Net cash flow used for investing activities | (120,000) | (80,000) | ||
Net cash flow used for financing activities | (20,000) | (32,000) |
a.
¹ $120,000 × 75%
² $80,000 × 75%
b. The change from $60,000 to $50,000 indicates an unfavorable trend.
a.
2012 | 2011 | |||
cash flow from operating activities | $140,000 | $120,000 | ||
Less: Investments in fixed assets to maintain current production | \underline{90,000¹} | \underline{ 60,000²} | ||
Free cash flow | \underline{\underline{\$ 50,000} } | \underline{\underline{\$ 60,000} } |