Short-Term Finance Policy Cleveland Compressor and Pnew York Pneumatic are competing manufacturing firms. Their financial statements are
Question:
Short-Term Finance Policy Cleveland Compressor and Pnew York Pneumatic are competing manufacturing firms. Their financial statements are printed here.
a. How are the current assets of each firm financed?
b. Which firm has the larger investment in current assets? Why?
c. Which firm is more likely to incur carrying costs, and which is more likely to incur shortage costs? Why?
CLEVELAND COMPRESSOR Balance Sheet 2012 2011 Assets Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,862 $ 16,339 Net accounts receivable . . . . . . . . . . . . . . . . . . . 23,887 25,778 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,867 43,287 Total current assets . . . . . . . . . . . . . . . . . . . . . $ 92,616 $ 85,404 Fixed assets:
Plant, property, and equipment . . . . . . . . . . . . . . 101,543 99,615 Less: Accumulated depreciation . . . . . . . . . . . (34,331) (31,957)
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . $67,212 $67,658 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 1,791 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,052 13,138 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $174,794 $167,991 Liabilities and Equity Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,494 $ 4,893 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,483 11,617 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 7,422 7,227 Other taxes payable. . . . . . . . . . . . . . . . . . . . . . . 9,924 8,460 Total current liabilities . . . . . . . . . . . . . . . . . . . 34,323 32,197 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,036 22,036 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,359 $ 54,233 Equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 38,000 Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 12,000 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 68,435 63,758 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,435 113,758 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . $174,794 $167,991 CLEVELAND COMPRESSOR Income Statement 2012 Income:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162,749 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,002 Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,751 Operating expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,570 Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 28,495 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,274 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134,339 Pretax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,412 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,890 Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,522 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,845 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,677 PNEW YORK PNEUMATIC Balance Sheet 2012 2011 Assets Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,307 $ 5,794 Net accounts receivable . . . . . . . . . . . . . . . . . . . . . . 22,133 26,177 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,661 46,463 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . $70,101 $78,434 Fixed assets:
Plant, property, and equipment . . . . . . . . . . . . . . . . . 31,116 31,842 Less: Accumulated depreciation . . . . . . . . . . . . . . (18,143) (19,297)
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . $12,973 $12,545 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688 763 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,385 1,601 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85,147 $93,343 Liabilities and Equity Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,019 $ 6,008 Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 3,722 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,295 4,254 Other taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 4,951 5,688 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . $13,910 $19,672 Equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,576 20,576 Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,624 5,624 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,164 48,598 Less: Treasury stock. . . . . . . . . . . . . . . . . . . . . . . . (1,127) (1,127)
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,237 $73,671 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . $85,147 $93,343 PNEW YORK PNEUMATIC Income Statement 2012 Income:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $91,374 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067 Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $92,441 Operating expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,042 Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 18,068 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,154 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $78,264 Pretax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,177 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,838 Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,339 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,905 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,434
Step by Step Answer:
Corporate Finance With Connect Access Card
ISBN: 978-1259672484
10th Edition
Authors: Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe