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Ratio of Cash to Monthly Cash Expenses Financial data for Hauser Company are shown below. For...

Ratio of Cash to Monthly Cash Expenses Financial data for Hauser Company are shown below. For Year Ending December 31, 2016 Cash on December 31, 2016 $78,400 Cash flow from operations (96,000) a. Compute the ratio of cash to monthly cash expenses. Round to one decimal place. months b. Interpret the results computed in (a).

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Answer #1

a). Monthly cash expenses = Negative cash flow from operations / 12

= $96,000 / 12 = $8,000

Cash to monthly cash expenses = Cash as of year-end / Monthly Cash expenses

= $78,400 / $8,000 = 9.8 months

b). This ratio shows that the company's cash balance only covers 9.8 months of the average net monthly expenses. In other words, if this trend continues, the company will be in a cash crunch and thus it should try to get a loan immediately to avoid this situation from escalating further.

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