Net income is calculated as total revenue less expenses. It indicates the profitability of business operation. Calculation of net income $ millions EBIT $5.00 Interest $1.00 EBT $4.00 Taxes $1.60 Net income $2.40 4*40% Thus, net income of company is $2.40 million. Net operating working capital is calculated as operating current assets less current liabilities. Calculation of net operating working capital is shown below $ millions Current assets $14.00 Payables $3.00 Accruals $1.00 NOWC $10.00 Thus, net operating working capital is $10 million. Calculation of free cash flow for the year. Free cash flow Operating income + Depreciation – Capital expenditures Free cash flow $5*(1-0.40)+$1-(15-12+1) Free cash flow $3+$1-$4 Free cash flow The free cash flow is $0 and so the cash generated during the year was utilised for capital expenditure. Free Cash Flow EBIT (1 – T) Depr. Capital expenditures Change in NOWC FCF = FCF = FCF = e. Rattner has 500,000 common shares outstanding and the common stock amount on the balance sheet is $5 million. The company has not issued or repurchased common stock during the year. Last year's balance in retained earnings was $11.2 million and the firm paid out dividends of $1.2 million during the year. Develop Rattner's end-of-the-year Statement of Stockholder's Equity. Common Stock Total Stockholders' Equity Retained Amount Earnings Shares Balances, beginning of year Net income Cash dividends Addition to retained earnings Balances, end of year

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