H Question # Questione 14 24 34 44 5+ 64 74 84 True Cash = + long-term debt + equity + current liabilities current assets other than cash - fixed assets. These are all sources or uses of cash. A Year-end #1: Cash 0 = + long-term debt 200+ capital stock 100 + opening retained earnings 50+ net income 50+ accounts payable 100 - accounts receivable 150 - inventory 50 - fixed assets 300. Year-end #2: Cash 0 = + long-term debt 100+ capital stock 100 + opening retained earnings 100 + net income 0 + accounts payable 150 accounts receivable 100- inventory 50 - fixed assets 300. Working capital policy changes improved cash, which was used to pay down debt. Firms need to distinguish between permanent funding requirements, and seasonal funding requirements to properly manage sales. Short-term financing is less expensive than long term funding for current assets. Sales revenue is used to develop accounts payable days. The sustainable growth rate (SGR) tells us how much the firm can grow by using internally generated funds and keeping the liquidity and solvency ratios the same as the prior year. As a firm's sales grow its accounts receivable and inventories will also grow if the firm's operating policies for these items remain constant at 30 days and 15 days respectively. Year-end #1: Sales 200 with Cash 100 = + long-term debt 100 + capital stock 100+ opening retained earnings 0 + net income 50 + accounts payable 100 accounts receivable 100 - inventory 50 - fixed assets 100. 2 A False t t 7. A e 94 10+ Year-end #2: Sales 400 with Cash 100 = + long-term debt 200 + capital stock 100+ opening retained earnings 50+ net income 50 + accounts payable 200-accounts receivable 100 - inventory 100 - fixed assets 300. The company uses a conservative financing policy. The situation in question 8 means the sales increase was not profitable because Cash remained the same in Year-end # 2. Maintaining a current ratio is a negative covenant. H Question # Questione 14 24 34 44 5+ 64 74 84 True Cash = + long-term debt + equity + current liabilities current assets other than cash - fixed assets. These are all sources or uses of cash. A Year-end #1: Cash 0 = + long-term debt 200+ capital stock 100 + opening retained earnings 50+ net income 50+ accounts payable 100 - accounts receivable 150 - inventory 50 - fixed assets 300. Year-end #2: Cash 0 = + long-term debt 100+ capital stock 100 + opening retained earnings 100 + net income 0 + accounts payable 150 accounts receivable 100- inventory 50 - fixed assets 300. Working capital policy changes improved cash, which was used to pay down debt. Firms need to distinguish between permanent funding requirements, and seasonal funding requirements to properly manage sales. Short-term financing is less expensive than long term funding for current assets. Sales revenue is used to develop accounts payable days. The sustainable growth rate (SGR) tells us how much the firm can grow by using internally generated funds and keeping the liquidity and solvency ratios the same as the prior year. As a firm's sales grow its accounts receivable and inventories will also grow if the firm's operating policies for these items remain constant at 30 days and 15 days respectively. Year-end #1: Sales 200 with Cash 100 = + long-term debt 100 + capital stock 100+ opening retained earnings 0 + net income 50 + accounts payable 100 accounts receivable 100 - inventory 50 - fixed assets 100. 2 A False t t 7. A e 94 10+ Year-end #2: Sales 400 with Cash 100 = + long-term debt 200 + capital stock 100+ opening retained earnings 50+ net income 50 + accounts payable 200-accounts receivable 100 - inventory 100 - fixed assets 300. The company uses a conservative financing policy. The situation in question 8 means the sales increase was not profitable because Cash remained the same in Year-end # 2. Maintaining a current ratio is a negative covenant
