During 2010, raines umbrella corp. had sales of $850,000. cost of goods sold, administrative and selling expenses, and depreciat
ion expenses were $610,000, $110,000, and $140,000, respectively. in addition, the company had an interest expense of $85,000 and a tax rate of 35 percent. (ignore any tax loss carryback or carryforward provisions.) a. what is raines's net income (loss) for 2010? (input the amount as a positive value.) $
b. what is its operating cash flow?
To calculate: 1) Net income (loss) for 2010. 2) Operating cash flow Solution: 1) Sales = $850000 Less: Cost of goods sold = $610000 Gross profit = $240000 Less: Administrative and selling expenses = $110000 Earning before Interest, Tax and Depreciation = $130000 Less: Depreciation = $140000 Earning before Interest and Tax (EBIT) = ($10000) Less: Interest expense = $85000 Earning before tax (EBT) = ($95000) Less: Tax = $0 (as company is having negative EBT or loss hence no tax)
Net loss = $95000 2) Operating cash flow EBIT + Depreciation - Tax Wherein, EBIT = Earning before Interest and Tax ($10000) + 140000 - 0 = $130000
The above scenario exemplifies a strategic conversation. The strategic conversation is all about deliberating the company's vision and mission. In the bigger picture, managers and CEO's usually interact quarterly or once a year to discuss and explore different strategies in order to improve the company's operations. Strategic conversations are important because they help to identify problems and their remedial solutions.