Пойгина Л.Б., Туринова Л.А. - English for Masters. Management Part 2 (1175657), страница 13
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Moreover, deposits of foreign currency are subject to exchange fluctuations,and funds borrowed for construction purposes may be restricted. In assessing the assets available to a business,carry as a noncurrent asset cash that is not readily available. The amount of time that elapses between thedisbursement and collection of cash (for example, between purchasing inventory or paying expenses andcollecting accounts receivable) helps determine a company's cash, requirements.In summary, low or restricted cash balances increase the risk of insolvency, the inability to pay bilk asthey come due.III ____________________The second category of assets on a balance sheet is marketable securities.
Companies often invest theirexcess cash temporarily in certificates of deposit, bankers' acceptances,, U.S. government securities, or highgrade corporate-commercial paper. These investments earn income in the form of interest until cash is neededin the business. Analysts should carefully analyze the current value of a company's marketable securities33account as well as its types of investments and their relative liquidity. To have the full confidence of theanalyst, these securities should♦ be readily marketable.♦ have a short term to maturity, and♦ pose no risk of losing principal.Other securities do not meet these criteria. If management claims to have temporary investments in securities.even including stock traded on a major stock exchange, stocks that are not actively traded, slocks in closely heldcorporations, and stocks held in affiliates, these investments are classified as marketable securities byaccountants.
For the credit analyst, they should be classified as "other assets" and carried noncurrent for thefollowing reasons:♦ Stocks are subject to wide swings in value.♦ Stocks may be being held to further the in vestment interests of management; they could end up as thefirst step in an acquisition and otherwise be indicative of long-term interests.♦ Stocks represent ownership interest in corporations, not in assets. In case of a problem, stock ownersreceive proceeds only after all creditors are satisfied.These stocks should not be carried as current marketable securities on the balance sheet. However, unless itis large, this account is normally not a significant consideration in financial statement analysis.IV _________________________________When a company sells merchandise or services on credit, it provides payment terms that allow the purchaserto pay within a specified time and may offer a discount as incentive for early payment.
Credit sales are shownas accounts receivable on the balance sheet until they are collected. Other receivables, such as those created bycredit extended to company officers, employees, or affiliates and by sales of other assets, should not be includedin this account, which is reserved for trade accounts receivable.Both the size and quality of this balance sheet account are of prime interest.
The size of a company's accountsreceivable is influenced by♦ the amount of credit sales,♦ the company's credit terms and collectionpolicies, and the♦ customers' payment habits.The more liberal the credit terms offered, the larger the accounts receivable will be. For example, supposea company's sales total $30,000 per month, its terms are net 30 (that is, payment is required in 30 days), andall its customers pay within the established time frame. The company's accounts receivable will never exceed$30,000.
However, if the company were to extend terms to 60 days, its accounts receivable could easily doubleto $60,000. Increasing terms always increases the likelihood of loss because of the possibility of unexpectedevents occurring. For the same reason, lax collection practices tend to result in delayed or lost payments. Inthe last example, if the company ignored overdue accounts and allowed customers to pay in 90 days ratherthan within the stipulated 60-day terms, its accounts receivable could increase by another $30,000 to $90,000.Liberal extension of credit to noncreditworthy customers or lax collection policies can undermine the qualityof a company's accounts receivable.A lagging economy can also result in slowed payments on accounts receivable.
When an overall downturnin economic activity occurs, companies generally earn less profit and their liquidity is reduced. A chainreaction of slowed payments results as companies paid more slowly by their own customers, in turn slow theirpayments to creditors. Since a company's liquidity is reduced when its receivables convert to cash lessreadily, less cash is generated for the business's operations.If accounts receivable have increased rapidly, the income statement should be examined to see whetherthere has been a corresponding increase in sales.
If not, the increase in receivables may indicate credit termsare being extended to stimulate sales.From the lender's standpoint, accounts receivable normally represent a good source of collateral becausethey generally are more liquid than the inventory which they replace. With a large customer base, therepayment risk is spread out. And a company's credit terms give an idea of the approximate time before accounts receivable convert into cash. Accounts receivable also represent good collateral because they can becollected to repay debt.Access to an aging-of-accounts-receivahle statement makes it easier to evaluate receivables.
Studying thisstatement is a means of determining the punctuality of a company's accounts in relation to the credit termsallowed, the success of the company's collection efforts, and the overall quality of the accounts receivable.The company should be able to supply a statement showing the aging of each accounts34receivable, both i n d i v i d u a l l y and by category. This information is important because the older thereceivable, the less likely it is to be paid.Companies should age their accounts periodically to monitor the q uality of their receivables over time andto spot current repayment trends. In many service industries, the accounts receivable should be broken outinto (1) completed work and (2) work in process. For example, a CPA firm may list accounts receivable foraudits in process as well as those that are completed.
Analyzing several different agings of receivables for thesame company enables the analyst to detect whether the past-due receivables have become more current. If thetrend is negative, the analyst determines the causes and investigates what actions management has taken toreverse the slowing trend.V ___________________ .A note receivable is an outstanding note with a specific repayment agreement.
Notes receivable are not anormal part of the operations of most businesses, and thus usually do not constitute a significant asset account.However, some businesses accept notes for the sale of merchandise. For instance, a heavy-equipment dealer mayaccept notes with extended payment terms for the sale of large pieces of equipment.If a note is not due within 12 months, then only the maturities due in the next 12 months are includedunder the company's current assets.
The remaining maturities are carried on the balance sheet as noncurrentassets.An evaluation of the quality of any notes begins with their payment status. If a customer took the note out topay a past-due accounts receivable, for example, then a collection problem already exists and the note may beof questionable value. The company's liquidity is reduced if it cannot collect the note on a timely basis.
If thecompany's notes receivable start to become a significant account, the analyst should investigate thecompany's credit policies.The next step is to evaluate any built-in interest rate charged to the customer. Since GAAP assume that therate being charged corresponds to the market rate, only a sharp deviation will raise a warning. The problemwith this limited concern for the note-receivable rate of interest is that a rate lower than market can reduce thevalue of this asset to the firm.
For example, consider the automobile companies that offer 2.5 percent annualrate of financing on a five-year car loan in order to induce potential purchasers. Clearly, the purchaser seesthis as an inducement for the same reason the lender would find the value of the note compromised below theface value. In effect, the automobile manufacturer is giving a discount to the buyer and also reducing the valueof the note. By the way, in this case at least, the firms have had to account for these notes at a discount fromface value.Companies can also assign notes as collateral.
However, before a bank accepts notes as collateral, it obtainsfinancial information about the debtor to determine whether the note will be paid within its specified terms.VI ______________________Finished Goods InventoryFinished goods are salable merchandise. For the retailer or wholesaler, finished goods have been purchasedfor resale and constitute the vast bulk of the inventor. For a manufacturing company, the finished goodsinventory includes any finished products not yet sold, but it is primarily made up of the raw materials used inthe manufacturing process and the work-in-process inventories discussed immediately below. For servicecompanies, consumable supplies used in the business of providing a service are considered inventor), but are notsalable directly, so would be considered raw materials even though they would be finished goods for a retailer.For example, replacement tires kept on hand by a trucking company would be classified as raw materialsinventory.For a retailer or wholesaler, the risk that the finished goods inventory will not sell is primarily related to thestyle sensitivity of the merchandise.
Л manufacturer's finished inventory is subject to this same risk. Therefore,an analyst should assess a company's inventory account in terms of the present and future marketability of itsinventory. Some kinds of merchandise have predictable and long-term marketability.For example undergarments are staple items that tend to bold their value because they are a basic clothing,item subject to continuous consumer demand, if, however, a company's inventory consists of trendy videogames that are subject to obsolescence, a sudden drop in market demand could render the inventors valueless.
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