Question

Action Therapeutics, Inc., reported the following financial data (in thousands) for the years ending December 31, Year 3, Year 2, and Year 1.
For years ended December 31
Year 3 Year 2 Year 1
Cash and cash equivalents $40,480 $20,460 $13230
Net cash flows from operations 55200 39,600 32,400

Compute the ratio of cash to monthly cash expenses for Years 1 and 2. Round your answers to one decimal place.

Answer 1

Answer:

The ratio of cash to cash expenses in year 1 is 0.69 and 1.07 in year 2

Explanation:

The monthly cash expense is net cash flows from operations minus cash and cash equivalents for the year.

                                                                   Year 1                      Year 2

Net cash flows from operations               $32,400                   $39,600

less cash and cash equivalents               ($13,230)                  ($20460)

Cash expense                                           $19,170                      $19,140

Ratio of cash to cash expenses(cash and cash equivalents/cash expense)

cash and cash equivalents                       $13,230                  $20460

Cash expense                                           $19,170                      $19,140

Ratio of cash to cash expense                 0.69                           1.07

This ratio examines the relationship between cash spent in a year versus the cash balance as at the end of the year.