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current liabilities and long-term liabilities

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1. Assume a company under analysis has few current liabilities but substantial long-term liabilities. Notes to the financial statements report the company has a "revolving loan agreement" with a bank. Is this disclosure relevant to your analysis?

2. Choose a certain industry subject to peculiar financing and operating conditions calling for special consideration in drawing distinctions between current and non-current. How should analysis recognize this in evaluating short-term liquidity?

3. Since cash generally does not yield a return, why does a company hold cash? Give an example.
4. Describe the process and purpose of Special Purpose Entities (SPE).

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1. Assume a company under analysis has few current liabilities but substantial long-term liabilities. Notes to the financial statements report the company has a "revolving loan agreement" with a bank. Is this disclosure relevant to your analysis?
There are three things that need to be considered. First is that the company has few current liabilities. Does this mean that the company purchases everything in cash? Has the company lost its reputation in the market? Purchasing in cash means a higher need for working capital. The company has substantial long term liabilities. I must find out the debt to equity ratio and see if the ratio is greater than tow. If that is the case the company has overleveraged itself. Finally, the revolving loan agreement is an overdraft. In my analysis I would like to see how often has this facility been used, and what is the interest paid on this overdraft?
2. Choose a certain industry subject to peculiar ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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