The following information comes from the financial statements of Randall Stewart company:
current assets 80,000
accounts payable 55,000
short term payable 65,000
long term debt 110,000
other long term liabilities 10000
total stockholders equity 180000
Randall has arranged with its bank t refinance its short term loan when it becomes due in three months. The new loan will have a term of five years.
Compute the following ratio value
current ratio
debt to equity ratio
debt ratio
So, my question is due I include the short term payable as current or not?
If you were the auditor of Randall Stewart's financial statements, how would you convince yourself of the validity of the refinancing agreement?
Solution Preview
The current short term financing is 65,000. This current debt is going to be refinanced into a long term payable. This is going to improve the current ratio, leave the debt to equity ratio unchanged, and the debt ratio unchanged. Randall is in a better position after the refinancing, as they have freed up cash flow, which means they can better adapt to a short term fluctuation in sales.
Randall has more flexibility after the refinance of the current debt. They still have the option to pay off their long term debt, if that is in the best interests of Randall, but they are not obligated ...
Solution Summary
Short term loans expected to be refinanced are examined.
... would be such that the PV = loan amount 50,000 ... a. The expected salvage value of the asset b ... In hedging approach, short term investments are financed by short...
... as the sale of capital assets, or loans or advances to ... a. Due on demand loan agreements b. Callable debt agreements c. Short-term obligations expected...
... Money alone is not enough to get banks to loan: they have to see ... Traditionally, the Fed has made short-term collateralized loans to banks to ...
... It will be "satisfied" by a long term obligation (refinanced loan). ... and Ability to Refinance on a Long-Term Basis. 470-10-45-14 A short-term obligation shall be ...
... The Big Short: Inside the Doomsday Machine. ... and its servicing rights, depending on the terms of the ... Thus, originators who sell loans may have less incentive to ...
... that had depended on short-term money markets ... non-standard loans involving easier lending terms. ... Negative amortisation loans, sometimes called 'Pay-option ARMs ...
... of the company to pay back loans and interest ... These obligations are expected to be funded primarily ... and profitability, either on a short-term and occasionally ...
... have expressed concern that they are being short changed by ... subsidiaries, ?3.5 billion in bank loans, ?3.5 billion ... innovative strength in the mid to long term. ...
