Suppose Green Caterpillar Garden Supplies Inc.’s assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Green Caterpillar Garden Supplies Inc.’s expected sales. $513,000 $621,000 $540,000 $594,000 When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Green Caterpillar Garden Supplies Inc. this year? $82,800 $68,400 $72,000 $79,200 In addition, Green Caterpillar Garden Supplies Inc. is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm’s profit margin and dividend payout ratio are expected to remain constant. Given the preceding information, Green Caterpillar Garden Supplies Inc. is expected to generate $_____________from operations that will be added to retained earnings
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet:
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Green Caterpillar Garden Supplies Inc. |
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|---|---|---|---|
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Balance Sheet |
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For the Year Ended on December 31 |
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| Assets | Liabilities | ||
| Current Assets: | Current Liabilities: | ||
| Cash and equivalents | $150,000 | Accounts payable | $250,000 |
| Accounts receivable | 400,000 | Accrued liabilities | 150,000 |
| Inventories | 350,000 | Notes payable | 100,000 |
| Total Current Assets | $900,000 | Total Current Liabilities | $500,000 |
| Net Fixed Assets: | Long-Term Bonds | 1,000,000 | |
| Net plant and equipment | $2,100,000 | Total Debt | $1,500,000 |
| (cost minus |
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| Common Equity | |||
| Common stock | 800,000 | ||
| 700,000 | |||
| Total Common Equity | $1,500,000 | ||
| Total Assets | $3,000,000 | Total Liabilities and Equity | $3,000,000 |
The firm is currently in the process of
Suppose Green Caterpillar Garden Supplies Inc.’s assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Green Caterpillar Garden Supplies Inc.’s expected sales.
$513,000
$621,000
$540,000
$594,000
When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Green Caterpillar Garden Supplies Inc. this year?
$82,800
$68,400
$72,000
$79,200
In addition, Green Caterpillar Garden Supplies Inc. is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm’s profit margin and dividend payout ratio are expected to remain constant.
Given the preceding information, Green Caterpillar Garden Supplies Inc. is expected to generate $_____________from operations that will be added to retained earnings.
According to the AFN equation and projections for Green Caterpillar Garden Supplies Inc., the firm’s AFN is $_______________
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