1. Contrast sources and uses of cash referencing using at least two examples of assets and liabilities (four total). Provide examples of how cash is used or provided depending on whether it is categorized as an asset or liability.
2. Differentiate between the different users of financial information, their needs and sources of information organization.
3. Explain the weaknesses of ratio analysis.
4. Tribke Enterprises collected the following data from its financial reports for 2012:
Stock price : $18.37
Inventory balance : $300,000
Expenses (excluding COGS) : $1,120,000
Shares outstanding : 290,000
Average issue price of shares : $5.00
Gross margin % : 40%
Interest rate : 8%
TIE ratio : 8
Inventory turnover : 12 x
Current ratio : 1.5
Quick ratio : .75
Fixed asset turnover : 1.5
Complete the following abbreviated financial statements, and calculate per share ratios indicated. (Hint: Start by subtracting the formula for the quick ratio from that for the current ratio and equating that to the numerical difference.)
Set up an income statement that includes revenue, COGS, GM, expertise, EBIT, interest, EBT, Tax, EAT. Set up a balance sheet that includes Current assets, Fixed assets, Total assets, current liabilities, long-term debt, Equity (paid in capital*, and retained earnings), total equity, and total liabilities & equity.
*Paid-in capital = Common Stock + Paid-in Excess
1. Cash is the current asset which is used for paying the liability or acquiring the fixed asset or used for meeting the operating expenses of the company.
Likewise, cash is received when the liability is generated or revenue is generated or fixed asset is disposed by the company.
If the company has acquired loan from the banks or financial institution for the period of two years, then the cash is received and it is the source of cash and the long term liability is created. Likewise, if the cash is spent for acquiring the land building, then cash is used for generating the fixed asset.
If the company is paying the trade creditors on due date, then the current liability is reduced and the cash is used for extinguishing the current liability.
If the company disposes of the old land and building, then the cash received is the source of generation of fixed asset.
If the company generates revenue and the cash is received from the customers or the cash is received from the trade debtors, then it is the source of cash and the current assets of the company are increased as the cash position of the company is increased. Further, the company can use the cash for meeting the day to day operations of the company like paying the salary and wages to its employees, paying the rent, insurance, electricity, ...
Practical financial management is discussed. The weakness of ratio analysis is determined.