Early in 2012, you deliver the financial statement data below to a client. (note: income statement data is for 2011 only.)

After a quick review, your client exclaims, “ How can I be profitable, I borrowed $40,000 from the bank and my cash decreased by $2,000? I must have incurred a net loss.”

Explain to your client why the $40,000 loan and the $2,000 decrease in cash did not affect profitability.

Calculate your client’s free cash flow.

	2011	2010
Cash Accounts receivable Inventory Equipment Accumulated Depreciation Total Assets Accounts payable Notes payable (long term) Total Libilities Common Stock Premium Retained Earnings Total Liabilities and Equity	$ 3,000 18,000 20,000 52,000 (10,000) $ 83,000 $ 4,000 40,000 $ 44,000 $ 2,000 18,000 19,000 $ 83,000	$ 5,000 8,000 15,000 20,000 ( 5,000) $ 43,000 $ 9,000 -0- $ 9,000 $ 2,000 18,000 14,000 $ 43,000

Sales	$ 240,000
Cost of Sales	150,000
Operating expenses (including depreciation - $5,000)	70,000

Net income	$ 20,000

Dividends paid	$ 15,000

Use the following information to determine how much Xavier Metals is worth at the end of 2011.

Can you think of any additional information you would like know about Xavier Metals to help you answer this question more thoroughly? Explain.

(Note: All $ amounts are in millions. Assume there are 10 million shares of common stock outstanding.)

.	Xavier Metals	.
.	.	.
.	2011	2010
.	.	.
Cash	119	98
Marketable Securities	59	-0-
Accounts receivable	312	254
Inventory	278	239
Prepaid expenses	35	21
Fixed assets	536	409
Accumulated depreciation	( 76)	( 53)
Accounts payable	212	198
Accrued expenses	98	76
Dividend payable	40	-0-
Notes payable	125	-0-
Common stock	600	550
Retained earnings	188	144

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