Question

Capstone analytical review of @ Chapters 2-4. Calculate liquidity and profitability measures and explain various financial statement relationships for an excavation contractor Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements: For the Year Ended December 31, 2019: Net revenues $ 96,600 Cost of services provided 34,200 Depreciation expense 19.500 Operating income $ 42.900 Interest expense 11,400 Income tax expense 9,600 Net income $ 21,900 At December 31, 2019: Assets Cash and short-term investments $ 8,400 Accounts receivable, net 29,400 Property, plant, and equipment, net 232,200 Total assets $270,000 Liabilities and Stockholders' Equity Accounts payable $ 4,500 Income taxes payable 4,800 Notes payable (long term) 142,500 Paid-in capital 30,000 Retained earnings 88,200 Total liabilities and stockholders' equity $270,000 At December 31, 2018, total assets were $246,000 and total stockholders' equity was $97,800. There were no changes in notes payable or paid-in capital during 2019.

Answer 1

Current assets are those assets which can be converted into cash within one year from the date such asset was acquired or created. Assets like cash, accounts receivable, supplies, inventory, etc. can be easily converted into cash within one year. Even some expenditures which are deferred in nature like prepaid expenditures are also classified as current assets only. Other assets like land, equipment, building, furniture, etc. are not convertible into cash within one year from the of acquisition of such assets and so they shall not be classified as current assets. Cash and short-term investments Accounts receivable, net Total current assets $8,400 $29,400 $37,800 [$8400 + $29400] When compared to total assets of $270000, total current assets of $37800 is too low because total assets consists of $232200 worth of Property, plant & equipment assets. It means that the firm depends more on long-term assets to carry out its business operations as well as generate business revenue during the reporting period concerned.