Praxis Corporation’s Chief Financial Officer (CFO) has decided to take a closer look at the firm’s short-term assets and liabilities. Praxis’s balance sheet follows: Praxis Corporation (Praxis) Balance Sheet Cash $1,700,000 Accounts payable $4,080,000 Accounts receivable $5,950,000 Accruals $2,550,000 Inventory $9,350,000 Notes payable $3,570,000 Total current assets $17,000,000 Total current liabilities $10,200,000 Long-term debt $15,300,000 Total debt $25,500,000 Common equity $5,100,000 Net plant and equipment $25,500,000 Retained earnings $11,900,000 Total equity $17,000,000 Total assets $42,500,000 Total liabilities and equity $42,500,000 The value of Praxis’s net working capital is_____________. And, Praxis’s current ratio is_____________. Assume that Praxis Corporation decides to acquire an additional $2,125,000 in inventories and pay using its accounts payable. Given the condition of the company noted in the balance sheet, this activity should be expected to cause Praxis’s current ratio to_____________(Pick either Increase, decrease, or stay the same.)
Praxis Corporation’s Chief Financial Officer (CFO) has decided to take a closer look at the firm’s short-term assets and liabilities. Praxis’s balance sheet follows: Praxis Corporation (Praxis) Balance Sheet Cash $1,700,000 Accounts payable $4,080,000 Accounts receivable $5,950,000 Accruals $2,550,000 Inventory $9,350,000 Notes payable $3,570,000 Total current assets $17,000,000 Total current liabilities $10,200,000 Long-term debt $15,300,000 Total debt $25,500,000 Common equity $5,100,000 Net plant and equipment $25,500,000 Retained earnings $11,900,000 Total equity $17,000,000 Total assets $42,500,000 Total liabilities and equity $42,500,000 The value of Praxis’s net working capital is_____________. And, Praxis’s current ratio is_____________. Assume that Praxis Corporation decides to acquire an additional $2,125,000 in inventories and pay using its accounts payable. Given the condition of the company noted in the balance sheet, this activity should be expected to cause Praxis’s current ratio to_____________(Pick either Increase, decrease, or stay the same.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Net working capital , working capital balances, and the current ratio
Praxis Corporation’s Chief Financial Officer (CFO) has decided to take a closer look at the firm’s short-term assets and liabilities. Praxis’s balance sheet follows:
Praxis Corporation (Praxis) Balance Sheet
|
|
|
|
|
|
|---|---|---|---|---|
| Cash | $1,700,000 | Accounts payable | $4,080,000 | |
| $5,950,000 | Accruals | $2,550,000 | ||
| Inventory | $9,350,000 | Notes payable | $3,570,000 | |
| Total current assets | $17,000,000 | Total current liabilities | $10,200,000 | |
| Long-term debt | $15,300,000 | |||
| Total debt | $25,500,000 | |||
| Common equity | $5,100,000 | |||
| Net plant and equipment | $25,500,000 | $11,900,000 | ||
| Total equity | $17,000,000 | |||
| Total assets | $42,500,000 | Total liabilities and equity | $42,500,000 |
The value of Praxis’s net working capital is_____________. And, Praxis’s current ratio is_____________.
Assume that Praxis Corporation decides to acquire an additional $2,125,000 in inventories and pay using its accounts payable. Given the condition of the company noted in the balance sheet, this activity should be expected to cause Praxis’s current ratio to_____________(Pick either Increase, decrease, or stay the same.)
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