Multiple Choice
The Liquid Company had a cash balance at the end of the current year of \$14,511. If the monthly cash expenses total \$3,495, how long could Liquid stay in business before going bankrupt, assuming no cash inflows?
14. Financial Statement Analysis
Ratios: Cash to Monthly Cash Expenses
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Tougher Company's had the following data for 2018 and 2017:
What was the increase or decrease in the ratio of cash to monthly cash expenses in 2018?
A
Increase 5.3 months
B
Decrease 5.3 months
C
Increase 8.1 months
D
Decrease 8.1 months
Verified step by step guidance1
Identify the formula for the ratio of cash to monthly cash expenses: Cash and Cash Equivalents / (Cash Flow from Operations / 12).
Calculate the monthly cash expenses for 2018 by dividing the Cash Flow from Operations by 12: (\$13,915 / 12).
Calculate the ratio of cash to monthly cash expenses for 2018 using the formula: \$9,353 / (monthly cash expenses for 2018).
Calculate the monthly cash expenses for 2017 by dividing the Cash Flow from Operations by 12: (\$18,770 / 12).
Calculate the ratio of cash to monthly cash expenses for 2017 using the formula: \$4,376 / (monthly cash expenses for 2017).
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