Question

Use the current asset section of the balance sheets of the El Paso Company as of January 31, 2012 and 2011 presented below to answer the questions that follow.

                                                          2012 2011

Cash and cash equivalents          $ 75,000       $ 58,800

Trade accounts receivable, net     157,500.     193,200

Inventory                                        208,200 253,400

Other current assets                           18,400 15,500

Total current assets                     $ 459,100 $ 520,900

Total assets                               $2,650,000 $3,430,000

a) Complete a Percentage Change analysis of the current asset section of El Paso Company's balance sheet for 2012, using the following format to provide your answers for the amount of dollar change and the amount of percentage change, rounding “% Change” to one decimal place, e.g., 8.3%.

b)Provide a short evaluation of this analysis.

Answer 1

Part b)

Increase in cash and cash equivalents means increase in items that are easily converted into cash like money market accounts, treasury bills, and short term government bonds. Cash and cash equivalents are a business' most liquid assets.

Accounts receivable are decreasing means sales are decreasing also when payments are due & you don’t receive the corresponding cash.

A decrease in inventory is a source of cash. As inventory is sold, cash is collected (assuming no increase in accounts receivable).

Decreases in current assets generally occurs most of the time. The cash balance of company rises and falls based on inflows and outflows of operational cash and financing activities. Generally decrease in an assets is balanced by either an increase in another asset, a decrease in a liability or equity account, or an increase in an expense. An example is a loan payment. Cash goes down by the amount of the payment while the total amount owed also goes down.