For Year Ended
December 31, 2014
Cash on December 31, 2014 $ 187,180
Cash flow from operations (458,400)
a. Compute the ratio of cash to monthly cash expenses.
b. Interpret the results computed in (a).
Answer:
a. Monthly Cash Expenses = Negative Cash Flow from Operations
12 months
= $458,400
12 months
= $38,200 per month
Ratio of Cash to
Monthly Cash Expenses
Cash as of Year-End = Monthly Cash Expenses
$187,180 = $38,200 per month
= 4.9 months
b. The preceding computations indicate that Bonita Company has 4.9 months of cash remaining as of December 31, 2014. Bonita Company will need to generate positive cash flow from operations or raise additional financing from its owners or by issuing debt.