Following is the current assets and current liabilities portion of the balance sheet of Keurig Green Mountain for the years ended September 26, 2015, and September 27, 2014:
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Keurig Green Mountain's Current Liabilities
Following is the current assets and current liabilities portion of the balance sheet of Keurig Green Mountain for the years ended September 26, 2015, and September 27, 2014:
| (Dollars in thousands) | September 26, 2015 | September 27, 2014 | |
| Current assets: |
|
|
|
| Cash and cash equivalents |
$59,334
|
$761,214
|
|
| Restricted cash and cash equivalents |
30,460
|
378
|
|
| Short-term investment |
—
|
100,000
|
|
| Receivables, less uncollectible accounts and return allowances of $35,459 and $66,120 at September 26, 2015 and September 27, 2014, respectively |
517,936
|
621,451
|
|
| Inventories |
691,980
|
835,167
|
|
| Income taxes receivable |
51,786
|
—
|
|
| Other current assets |
95,526
|
69,272
|
|
| |
70,181
|
58,038
|
|
| Total current assets |
$1,517,203
|
$2,445,520
|
|
| Current liabilities: |
|
|
|
| Current portion of long-term debt |
$ 279
|
$ 19,077
|
|
| Current portion of capital lease and financing obligations |
3,271
|
2,226
|
|
| Accounts payable |
298,609
|
411,107
|
|
| Accrued expenses |
226,519
|
305,677
|
|
| Income tax payable |
1,085
|
53,586
|
|
| Dividend payable |
44,048
|
40,580
|
|
| Deferred income taxes, net |
264
|
340
|
|
| Other current liabilities |
28,049
|
10,395
|
|
| Total current liabilities |
$ 602,124
|
$ 842,988
|
Source: Keurig Green Mountain, Inc Form 10-K for the year ended September 26, 2015.
Required:
1. Determine the company's current ratio for each fiscal year. Round your answers to two decimal places.
| Current Ratio | |
| 2014 | fill in the blank 1: 1 |
| 2015 | fill in the blank 2: 1 |
2. What do the ratios indicate about the liquidity of the company?
The current ratio is a reliable indicator of solvency. It helps to shows the ability of a company to pay its current obligations. The current ratio for both years is above 2.0. This means the company has fewer current liabilities than current assets. This amount will not require payment in the future. For both years, the company had a relatively large amount of cash on hand.
3. What were the major causes for any changes in liquidity?
Changes in cash and inventory.
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