Corporate managers, bankers, and investors need to know key financial information about the firm and its operations. How

[answerhappygod]

Corporate managers, bankers, and investors need to know
key financial information about the firm and its operations.
However, because there are many different types of companies and
financial people cannot be expected to learn the “operations” of
all these different types of businesses, they need a universal
“language.“ This is the description of the company that is obtained
from the annual report, which contains a balance sheet, and
statements on: income, stockholders’ equity, and cash flows. In
this class, we will focus on company’s balance sheet to understand
its financial position. Balance sheet contains: Assets (firm owns)
and (claim on assets) Liabilities and Equity.
Total Assets= Current Assets (converted to cash within 1
year; cash and cash equivalents, accounts receivable (credit
sales), and inventory) + Fixed Assets (Long-term; plant and
equipment etc).
Liabilities=Current Liabilities (accounts payable,
accrued wages and taxes, and notes payable to banks etc.)+Long
-term Debt (bonds). Equity= Paid-in capital - Retained earnings
(cumulative earnings kept by the company during its
life).
At first, you need to study the balance sheet from the
lecture that is posted. Work on the following exercise and show how
you calculated. Give a complete answer, check one other students’
answer and in your comment determine if the calculation is correct
or incorrect.
Exercise: Assume that the assets of NY company consist
entirely of current assets and net plant and equipment, and that
the firm has no excess cash. The firm has total assets of $2.5
million and net plant and equipment equals $2 million. It has notes
payable of $150,000, long-term debt of $750,000, and total common
equity of $1.5 million. The firm does have accounts payable and
accruals on its balance sheet. The firm only finances with debt and
common equity, so it has no preferred stock on its balance
sheet.
a. What is the company’s total debt?
b. What is the amount of total liabilities and equity
that appears on the firm’s balance sheet?
c. What is the balance of current assets on the firm’s
balance sheet?
d. What is the balance of current liabilities on the
firm’s balance sheet?
e. What is the amount of accounts payable and accruals
on its balance sheet? (Hint: Consider this as a single line item on
the firm’s balance sheet.)
f. What is the firm’s net working capital? (Show the
calculation)
g. What is the firm’s net operating working capital
(NOWC)? (Show the calculation)