Solvency ratios this is one of many ratios used to measure a company’s ability to meet long-term obligations. The solvency ratio measures the size of a company’s after-tax income, excluding non-cash depreciation expenses, as compared to the company’s total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. Users who may be interested in each type of ratio? Liquidity ratios are used by suppliers and other trade creditors.
Leasing the building will allow John to write off the payments as rent expense. However, if he has the capital to purchase the building, it would be considered an asset and he would be allowed to depreciate over the life of the building. This decision would have to weigh factors such as: capital investment, loan options if no capital investment, and expected future profits and expenses of the business. 2. Jane Smith tax issues: Issue a) What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes?
FP101 Week Two DQ 1 Post a 150- to 300-word response to the following discussion question by clicking on Reply: Refer to p. 87–93 of Personal Finance. Identify two cash management products and provide a short description of each. Do you have any experience with these products? Account Reconciliation and Controlled Disbursement Account Service are both important and beneficial to a company by managing people’s money spending situations. It is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the balances match at the end of a particular accounting period.
These ratios will be calculated from the income statement, balance sheet and statement of cash flows Liquidity Liquidity Ratios measure a company’s ability to meet its short-term debt obligations without disrupting normal operation. The higher the ratio the better a company will be at meeting its short-term obligations as well as have extra cash to cover any unforeseen cash requirements. The liquidity measures we will use are the current ratio, current cash debt ratio, inventory turnover, average days in inventory, receivable turnover ratio and average collection period. The current ratio measures the company’s ability to pay its short-term liabilities (payables and debt) with short-term assets (cash, receivables and inventory). Tootsie Roll exceeds its ability to meet short-term debt obligations with $3.45 in current assets for every $1 in current liabilities.
| | | Establishes a market value for the firm. | | | Makes it easier for owner-managers to engage in profitable self-dealings. | 8 points Question 2 Financial Accounting Standards Board (FASB) Statement #13 requires that for an unqualified audit report, financial (or capital) leases must be included in the balance sheet by reporting the Answer | | residual value as a fixed asset. | | | residual value as a liability. | | | present value of future lease payments as an asset and also showing this same amount as an offsetting liability.
It will show where it comes from, and where it goes. This indicates the company’s profitability, as shown in the net income, and their ability to meet obligated debts. It is possible for a company to have success in sales and net earnings and still fail to generate enough cash flow to meet obligations. The Home Depot is reporting a well maintained cash balance as reported in the balance sheet, and its operations continue to keep the influx of cash coming. The Home Depot cash flow shows significant net earnings and the cash flow statement does not indicate a drastic drop from previous years.
The main purpose of the cash flow statement is to allow external users to assess the solvency and profitability of the company, to ensure the safety of their investment decisions. This projection can be made for the entire period covered by the business plan but because the date from it is used for making the Balance sheet it is recommended to go gradually year by
Cash disbursements show where you must spend some of your money, such as on employee pay, raw materials purchases, and manufacturing overhead costs Financing shows expected payments and the repayments of the borrowed funds plus interest. (Kimmel, 2009, p. 353). If there is a cash deficiency during any period, the company will need to borrow funds. If there is cash excess during any budgeted period, funds borrowed in previous periods can be repaid or the excess funds can be invested. 2) Why is a Cash Budget so vital to a company?
“We intend to retain our earnings to finance the expansion of our business and do not anticipate paying cash dividends in the foreseeable future……Dividend Payments are restricted by our bank credit facilities to 50% of our net income for the immediately preceding fiscal year.”i Cash Flow Statement Analysis: Krispy Kreme uses the Indirect Method of reporting Operating Cash Flows. In 2001 the cash provided by operating activities was $32,112 (Thousand), while the Cash dividends was $7,005 (Thousand). Cash provided by operating activities exceeded the cash paid for dividends. The company did not
Assumptions shown in Exhibit 1(b) for 2012 projections were used to evaluate changes in Accounts Payable purchases, inventory levels, and associated expenses of each option. In addition, loan needs were evaluated as compared to the loan amount available from the bank including restrictions based on Accounts Receivable and Inventory levels and tiered interest rate costs. From the income statement the revenues for Polar Sports have shown an upward trend from 2009 to 2011 Exhibit 1(a). If the company maintains seasonal production, it can expect an approximate net income of $1.147M which is an increase of 28% from 2011. Although the company will be profitable, the company will not benefit from reducing costs of production, operations, or