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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ratio of cash to monthly cash expenses

Financial data for Otto Company follow:

  For Year Ended December 31
Cash on December 31 $ 69,350
Cash flow from operations (114,000)
  1. a. Compute the ratio of cash to monthly cash expenses.
  2. b. Interpret the results computed in (a).

 (1)

To determine

Monthly cash expenses: Monthly cash expenses are those cash expenses that are estimated from the operating activities section of the statement of the cash flows. These monthly cash expenses are otherwise referred to cash burn.

Formula:

Monthly cash expenses = Negative cash flow from operations 12

To compute: Ratio of cash to monthly cash expenses.

Explanation

Compute ratio of cash to monthly cash expenses.

Ratio of cash to monthly cash expenses ratio is used to make assessment of company whether how long it can determine without additional financing and positive cash flows generated from operations.

Ratio of cash to monthly cash expenses = Cash as of year-endMonthlycashexpenses=$69,350$9,500per month=7

(2)

To determine

To interpret: The results of ratio.

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