Solution-Comment on the short-term debt position including

Comment on the short-term debt position including

Reference no: EM13479191

Arrowbell Company is a growing company. Two years ago, it decided to expand in order to increase its production capacity. The company anticipates that the expansion program can be completed in another two years. Financial information for Arrowbell is as follows.

	Arrowbell Company
	Sales and Net Income
	year	sles	Net Income
	2007	2,568,660	145,800
	2008	2,660,455	101,600
	2009	2,550,180	52,650
	2010	2,625,280	86,800
	2011	3,680,650	151,490
	Arrowbell Company
	Balance Sheet
	12/31/2011 and 2010
	2011	2010
Assets
Current assets:
Cash	250,480	260,155
Accounts receivable (net)	760,950	690,550
Inventories at lower-of-cost-or-market	725,318	628,238
Prepaid expenses	18,555	10,250
Total current assets	1,755,303	1,599,193
Plant and equipment:
Land, buildings, machinery, and equipment	3,150,165	2,646,070
Less: Accumulated depreciation	650,180	525,650
Net plant and equipment	2,499,985	2,120,420
Other assets:
Cash surrender value of life insurance	20,650	18,180
Other	40,660	38,918
Total other assets	61,310	57,098
Total assets	4,316,598	2,776,711
Liabilities and Stockholders%u2019 Equity
Current liabilities:
Notes and mortgages payable, current portion	915,180	550,155
Accounts payable and accrued liabilities	1,160,111	851,080
Total current liabilities	2,075,291	1,401,235
Long-term notes and mortgages payable, less current portion
above	5,550,000	775,659
Total liabilities	2,625,291	2,176,894
Stockholders%u2019 equity:
Capital stock, par value $1.00; authorized, 800,000; issued
and outstanding, 600,000 (2011 and 2010)	600,000	600,000
Paid in excess of par	890,000	890,000
Retained earnings	201,307	109,817
Total stockholders%u2019 equity	1,691,07	1,599,817
Total liabilities and stockholders%u2019 equity	4,316,598	3,776,711
ARROWBELL COMPANY
Statement of Cash Flows
For Years Ended December 31, 2011 and 2010
	2011	2010
Cash flows from operating activities:
Net income	151,490	86,800
Noncash expenses, revenues, losses, and gains included in
income:
Depreciation	134,755	102,180
Increase in accounts receivable	-70,400	-10,180
Increase in inventories	-87,080	-15,349
Decrease in prepaid expenses in 2011, increase in 2010	1,695	-1,058
Increase in accounts payable and accrued liabilities	309,031	15,265
Net cash provided by operating activities	429,491	177,658
Cash flows from investing activities:
Proceeds from retirement of property, plant, and equipment	10,115	3,865
Purchases of property, plant, and equipment	-524,435	-218,650
Increase in cash surrender value of life insurance	-2,470	-1,849
Other	-1,742	-1,630
Net cash used for investing activities	-518,532	-218,263
Cash flows from financing activities:
Retirement of long-term debt	-225,659	-50,000
Increase in notes and mortgages payable	365,025	159,155
Cash dividends	-60,000	-60,000
Net cash provided by financing activities	79,366	49,155
Net increase (decrease) in cash $	-9,675	8,550
Required

Required
a. Comment on the short-term debt position, including computations of current ratio, acid-test ratio, cash ratio, and operating cash flow/current maturities of long-term debt and current notes payable.
b. If you were a supplier to this company, what would you be concerned about?
c. Comment on the long-term debt position, including computations of the debt ratio, debt/equity, debt to tangible net worth, and operating cash flow/total debt. Review the statement of operating cash flows.
d. If you were a banker, what would you be concerned about if this company approached you for a long-term loan to continue its expansion program?
e. What should management consider doing at this point with regard to the company%u2019s expansion program?

Reference no: EM13479191

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Comment on the short-term debt position including

Reference no: EM13479191

Reference no: EM13479191

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