Martha's Moving Van 4U, Inc. had free cash flow during 2018 of $1 million, EBIT of $30 million, tax expense of $8 million, and depreciation of $4 million. Using this information, what was Martha's Accounts Payable ending balance in 2018?

Question

Quizplus · Accepted Answer

The free cash flow is calculated as EBIT minus tax expense plus depreciation. Here, $30 million (EBIT) - $8 million (tax) + $4 million (depreciation) = $26 million. Since the free cash flow is $1 million, the difference of $25 million must be due to changes in working capital, which includes accounts payable. Therefore, the ending balance of accounts payable is $35 million.