Question
Corporate managers, bankers, and investors need to know key financial information about the firm and its operations. However, because there are many different types of
Corporate managers, bankers, and investors need to know key financial information about the firm and its operations. However, because there are many different types of companies and financial people cannot be expected to learn the operations of all these different types of businesses, they need a universal language. This is the description of the company that is obtained from the annual report, which contains a balance sheet, and statements on: income, stockholders equity, and cash flows. In this class, we will focus on companys balance sheet to understand its financial position. Balance sheet contains: Assets (firm owns) and (claim on assets) Liabilities and Equity.
Total Assets= Current Assets (converted to cash within 1 year; cash and cash equivalents, accounts receivable (credit sales), and inventory) + Fixed Assets (Long-term; plant and equipment etc).
Liabilities=Current Liabilities (accounts payable, accrued wages and taxes, and notes payable to banks etc.)+Long -term Debt (bonds). Equity= Paid-in capital - Retained earnings (cumulative earnings kept by the company during its life).
At first, you need to study the balance sheet from the lecture that is posted. Work on the following exercise and show how you calculated. Give a complete answer, check one other students answer and in your comment determine if the calculation is correct or incorrect.
Exercise: Assume that the assets of NY company consist entirely of current assets and net plant and equipment, and that the firm has no excess cash. The firm has total assets of $2.5 million and net plant and equipment equals $2 million. It has notes payable of $150,000, long-term debt of $750,000, and total common equity of $1.5 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.
a. What is the companys total debt?
b. What is the amount of total liabilities and equity that appears on the firms balance sheet?
c. What is the balance of current assets on the firms balance sheet?
d. What is the balance of current liabilities on the firms balance sheet?
e. What is the amount of accounts payable and accruals on its balance sheet? (Hint: Consider this as a single line item on the firms balance sheet.)
f. What is the firms net working capital? (Show the calculation)
g. What is the firms net operating working capital (NOWC)? (Show the calculation)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started