For Years Ended December 31
Year 3 Year 2 Year 1
Cash and cash equivalents $ 48,402 $141,423 $30,696
Net cash flows from operations (63,656) (62,199) (42,850)
a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place.
c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.
Answer:
a. Year 3: $5,304.7 per month ($63,656 ÷ 12)
Year 2: $5,183.3 per month ($62,199 ÷ 12)
Year 1: $3,570.8 per month ($42,850 ÷ 12)
b. Year 3: 9.1 months ($48,402 ÷ $5,304.7)
Year 2: 27.3 months ($141,423 ÷ $5,183.3)
Year 1: 8.6 months ($30,696 ÷ $3,570.8)
c. Since Year 1, Allos Therapeutics monthly cash expenses have increased from $3,570.8 in Year 1 to $5,304.7 in Year 3. The ratio of cash to monthly cash expenses has increased from 8.6 months at the end of Year 1, to 27.3 months at the end of Year 2. Allos Therapeutics increased its monthly cash expenses in Year 3 to $5,304.7 per month and at the end of Year 3 it will run out of cash in just over nine months assuming it doesn’t change its operations or raise additional financing. Unless the company improves its cash flows, it may have difficulty raising sufficient cash from investors or creditors to continue operations in the long term.