Question

Accounting data are used analyze cash flows, and this analysis is critical for decision making. Consider the following case: J&H corp recently hired Jeffery. His immediate mandate was analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. Last year, J&H Corp. Reported a book value of $700 million in current assets, of which 35% is cash, 37% si short-beam investments, and the rest is accounts receivable and inventory. The company reported $595.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payable during the reporting period. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $1,120 million in long-term assets last year. Based on the information given to Jeffery, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan.
Which of the following statements in his report are true?
a. J&H Corp.'s net operating working capital is $105.0 million.
b. J&H corp.'s NOPAT is $336.0 million, which is lower than the industry average of $420.0 million
c. J&H Corp.'s total net operating capital consists of its net operating working capital and total investment in long-term assets.
d. The company has no notes payable reported in its balancesheet, so all its current are its operating liabilities.
e. J&H Corp. has-$154.0 million of non-interest bearing current assets net of non-interest charging liabilities.

Answer 1

Answer:

a. J&H Corp.'s net operating working capital is $105.0 million.

d. The company has no notes payable reported in its balance sheet, so all its current are its operating liabilities.

Explanation:

cash $245

short term investments $259

accounts receivable and inventory $196

total current assets = $700

long term assets = $1,120

total assets = $1,820

total liabilities = $595

total equity = $1,225

options:

a) net operating working capital = current assets - current liabilities = $700 - $595 = $105

b) there is no information about the company's profits or the average profits for other companies in the same industry (SO OPTION B IS WRONG)

c) net operating capital = current assets - current liabilities (SO OPTION C IS WRONG)

d) correct, since the company doesn't have any long term liabilities, all of its liabilities must be current or operating liabilities

e) there is no way to determine this from the information provided (SO OPTION E IS WRONG)