Case file: Northline Instruments
Northline is an entirely fictional industrial equipment company. All amounts below are $m, for one year, with simplified US GAAP-style statements. COGS and other cash operating costs exclude D&A. Assume all tax expense is current and paid; there are no FX, acquisition or other noncash working-capital changes. Try each calculation before opening the interpretation.
| Income statement | Current year |
|---|---|
| Revenue | 1,200 |
| COGS excluding D&A | (720) |
| Other operating costs excluding D&A | (300) |
| D&A | (60) |
| Operating income | 120 |
| Nonoperating gain on land sale | 20 |
| Interest expense | (30) |
| Income tax expense | (27.5) |
| Net income | 82.5 |
| Balance sheet | Opening | Closing |
|---|---|---|
| Cash | 80 | 157.5 |
| Receivables | 180 | 210 |
| Inventory | 140 | 160 |
| Net PP&E | 400 | 440 |
| Land held outside operations | 40 | 0 |
| Total assets | 840 | 967.5 |
| Trade payables | 100 | 115 |
| Debt | 300 | 350 |
| Equity | 440 | 502.5 |
Additional evidence: cash capex is $100m, land sold for $60m, net new borrowing is $50m and cash dividends are $20m. There are no other movements.
Reconstruct the mechanism
EBIT is 82.5 + 27.5 + 30 = $140m; EBITDA is $200m. Removing the $20m nonoperating land gain gives a normalized operating EBITDA-like view of $180m. Operating working capital rises by 30 + 20 − 15 = $35m. Operating cash flow is 82.5 + 60 − 20 − 35 = $87.5m.
Cash flow after capex is negative $12.5m. Investing cash flow is −100 + 60 = −$40m. Financing cash flow is 50 − 20 = $30m. Cash increases 87.5 − 40 + 30 = $77.5m, ending at $157.5m. The balance sheet and equity rollforward reconcile: 440 + 82.5 − 20 = 502.5.
Interpretation: cash rose despite negative cash flow after capex because asset-sale proceeds and new borrowing provided funding. The land sale is not a repeatable operating source. This does not prove distress: capex may fund attractive growth. That question needs evidence about investment returns and future cash needs.