Cash Flow Analysis – Signal Cable Company Essay

1573 Words Oct 16th, 2015 7 Pages
TOPIC : CASH FLOW ANALYSIS –
SIGNAL CABLE COMPANY

Introduction
The Signal Cable Company is a cable manufacturer for analog and digital interconnects, speaker, video and home theater cables. It is located in Tarrytown, New York. The company is well known for “highest standard in quality and customer service” and their “superior design” and “No-Hype approach resulted in one of the best price/performance ratio in the industry”.
After Signal Cable had enjoyed quite a run up in profits over the past few years, the management decided to enter in the fiber optic communications business. The market was growing, the demand increased and the competition was not too severe. Eventually, the company established two additional manufacturing
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Thus, it was caused some shareholders to sell their shares and therefore the company’s stock price declined.

2. How liquid would you say that this company is? Calculate the absolute liquidity of the firm. How does it compare with the previous year’s liquidity position?
Absolute liquidity is represented by the cash and cash equivalents items. It is a ratio of absolutely liquid assets to current liabilities.
Absolute Liquid Ratio (ALR) = Absolute Liquid Assets / Current Liabilities | 2004 | 2003 | ALR | 5,000 / 895,000= 0.0056 : 1 | 40,000 / 355,000= 0.113 : 1 |

The reason of computing absolute liquid ratio is to eliminate accounts receivables from the list of liquid assets because there may be some doubt about their quick collection. The Absolute Liquid Ratio in 2003 showed that there are 0.113 cents worth of absolute liquid assets are considered sufficient for one dollar worth of current liabilities. While the Absolute Liquid Ratio in 2004 is considered very low compared with the previous year’s liquidity position. It is represent that only 0.0056 cents worth of absolute liquid assets are considered sufficient for one dollar worth of current liabilities.

3. How does the market value of the stock compare with its book value? Is the book value accurately reflecting the true condition of the company?
Market value is the value of a company according

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