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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

Cash to monthly cash expenses ratio

TearLab Corp. is a health care company that specializes in developing diagnostic devices for eye disease. TearLab reported the following data (in thousands) for three recent years:

  For Years Ended December 31
Year 3 Year 2 Year 1
Cash and cash equivalents $ 13,838 $16,338 $37,778
Net cash flows from operations (23,703) (18,172) (13,234)
  1. 1. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.
  2. 2. Determine the ratio of cash to monthly cash expenses as of December 31 for Year 3, Year 2, and Year 1. Round to one decimal place.
  3. 3. Based on (1) and (2), comment on TearLab’s ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.

(a)

To determine

Cash and cash equivalents: Cash is the money readily available in the form of currency. Cash equivalents are the near-cash items, which are readily convertible into cash.  Cash equivalents have a maturity period of three months, or less than 3 months.

To compute: Monthly cash expenses for Year 3, Year 2 and Year 1.

Explanation

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:

(b)

To determine

To compute: the ratio of cash to monthly cash expenses.

(c)

To determine

To comment: Ratio of cash to monthly operating expenses for Year 3, Year 2, and Year.

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