armember-membership domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114ARMember domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114Far and above the most valuable liquidity ratio is the operating cash ratio. Unlike the other liquidity ratios that are balance sheet derived, the operating cash ratio is more closely connected to activity (income statement based) ratios than the balance sheet<\/span><\/strong>.<\/a> Its primary element, the numerator in this formula is based on the income statement’s results on the cash basis method of accounting. This cash income is then divided by all current liabilities. The concept is simple; can the cash income over a period of time pay the current liabilities over the same period of time.<\/span><\/p>\n Of the 21 different core business ratios used in business analysis, this one is one of the top three most complicated. For one thing, the user must understand how cash flow from operations is calculated. Secondly, the perceptive user will want to know how is it that the very result of operating cash flows which is calculated from the change in current liabilities is then used to determine the ability to pay those current liabilities. It is like saying that you depend on ‘A’ to pay ‘A’. It borders on circular reasoning. Finally, a third issue complicating all this is the fact that cash flows from operations is also used to service debt, purchase fixed assets, add to working capital and reward investors for their risk taken on their investment. In reality, the higher this ratio the more lucrative and rewarding this investment. By the time you finish reading this chapter you will hold this single ratio in high regard if not the most critical of all ratios.<\/span><\/p>\n To educate the reader about this ratio, he must first understand how operating cash flow is calculated.\u00a0 Next this chapter explores the ratio as it relates to its relationship to current liabilities. Once the underlying fundamentals are understood, the next section explains how to use the ratio and apply it to businesses. Finally, this chapter introduces the broad application of the underlying operating cash flows and why this single value is the most important tool in analyzing small business and small cap investments.<\/span><\/p>\n This chapter in this series is an in-depth lesson about the operating cash ratio. More sophisticated and experienced business entrepreneurs may only need to read the first few paragraphs in each section to grasp the section’s goal. Others will have read the entire section to fully understand and apply the operating cash ratio. Use your judgement in how much to read as you progress with this chapter.<\/span><\/p>\n Accountants use two different methods of accounting. They are:<\/span><\/p>\n Since most businesses use the accrual method<\/span><\/strong><\/a>, a third report in the financial statements converts accrual reports of the balance sheet and the income statement into a single cash basis report. This report is called the cash flows statement. This cash basis report is split into three sections.<\/span><\/p>\n For those readers familiar with cash flows from operations and how it is calculated, stop here and move onto ‘Operating Cash Flow and Current Liabilities’, the next section.<\/span><\/p>\n The cash flow operations converts the accrual net profit into the actual cash earnings for the period in question. The basic formula is:<\/span><\/p>\n \u00a0 \u00a0Accrual Net Profit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $ZZ,ZZZ<\/span><\/span> Although this appears simple, it is actually quite convoluted as the formula steps are independently explained below.<\/span><\/p>\n Step One \u2013 Start with Net Profit and Add Back Non-Cash Expenses<\/strong><\/span><\/p>\n The formula always starts with net profit, i.e. the bottom line from the income statement (profit and loss statement). This net profit value is always after capital cost expenses of depreciation and amortization. Furthermore, the net profit is a result of allocations to the income statement including allocation of long-term warranties, long-term prepaid technology costs and insurance. Notice only long-term prepaid expenses are included here. Short-term prepaid are actually a function of current assets in Step Two below. The following is a condensed version of this step.<\/span><\/p>\n Take the Net Profit\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $ZZ,ZZZ<\/span><\/span> Sometimes there are subtractions, but this is rare. Subtractions may include pre-paid billings (long-term only) or deposits converted to sales. With small business this so rare because many accountants do not know how to track this for bookkeeping purposes. Therefore, the original transactions are usually included in the income statement or in current liabilities.<\/span><\/p>\n At the end of Step One, the value is considered operational cash flow provided there are no changes to current assets or current liabilities. In reality, there are always changes to these two balance sheet sections.<\/span><\/p>\n Step Two \u2013 Add or Subtract Current Asset Changes<\/strong><\/span><\/p>\n Current assets typically comprise four assets as follows:<\/span><\/p>\n \u00a0 \u00a0–\u00a0 Cash\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 – Accounts Receivable<\/span> The goal of the cash flows statement is to account for the change in cash. This particular asset of the current assets group is excluded in calculating the change in current assets. To calculate the change in current assets, the reader gathers information in the form of the beginning and ending balances for the respective current assets. The beginning balances reflect the start of the accounting period used. Most operating cash ratios are stated for an entire year. Therefore, the beginning balance is last year\u2019s ending balance. By determining the change over one year, the user can aggregate the individual changes to determine total change in current assets excluding cash. Here is an illustration.<\/span><\/p>\n ACME ROADRUNNER TRAPS<\/strong><\/span><\/span> Current Assets<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a012\/31\/15<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a012\/31\/16<\/u>\u00a0 \u00a0 \u00a0 \u00a0\u00a0Difference This is the part that throws most accountants, finance directors and investors into a rage. Do I add or subtract this value from the adjusted net profit in Step One? Well to answers this, let\u2019s think about current assets in isolation. If assets increase, how did they increase? Obviously cash must have been used to buy the assets.\u00a0 If cash is used then it must be subtracted from the value in Step One.\u00a0 Remember the cash in the cash account is excluded as illustrated above. The cash flows statement is trying to account for the total change in cash. Think about the above, to increase assets, ACME had to pay for them. So it uses cash to do this. If this final change were negative, it would be no different then selling them and receiving cash. For example, suppose their customer Wyle E. Coyote paid down his balance to $38,643, then ACME received cash of $4,000. Thus, if this were they only change in current assets, then this $4,000 value would be added to the adjusted net profit from operations.<\/span><\/p>\n Step Three \u2013 Add or Subtract Changes in Current Liabilities<\/strong><\/span><\/p>\n This step is easier than Step Two because there are no exclusions. Current liabilities are easy to understand. A liability means the business is borrowing money. There are two groups (forms) of liabilities, long and short term. Long-term debt is handled in the cash flow from financing section of the cash flows statement. Whereas, short-term liabilities are addressed with cash flows from operations. This separation of long and short term liabilities exists because short-term debt relates directly to operations. Long-term debt is almost always a function of purchasing fixed assets. Here is a list of short-term liabilities:<\/span><\/p>\n All five accounts are a direct reflection of current operations. For example, as a company pays the employee, the employee earns rights to benefits such as vacation time and healthcare. The company owes the amount as an accrued expense which is deducted as an expense under accrual accounting. The same is true for purchases of materials and supplies via vendors as posted to the accounts payable. Taxes payable include payroll taxes withheld from employees and matching taxes (Social Security and Medicare). Other taxes include revenue, property and of course income taxes (federal and state). These are deducted as expenses on the income statement and have yet to have the check cut to pay them.<\/span><\/p>\n The normal pattern for current liabilities is to expand (increase) in the aggregate as a company prospers. More mature and high profit margin operations tend to reduce the aggregate current liabilities over time. But just like current assets, the user of information needs both the beginning and ending balances covering the time period of the income statement. Here is an example:<\/span><\/p>\n \u00a0 Current Liabilities<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a012\/31\/15<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 12\/31\/16<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/strong>Difference<\/strong> Is this decrease in current liabilities a cash inflow or outflow?<\/span><\/p>\n Remember, if liabilities increase, it is the same as borrowing money (inflow). In the above case, current liabilities decreased meaning the business paid down or paid off debt which is a cash outflow.<\/span><\/p>\n Going back to the original cash flow from operations formula, the three steps are:<\/span><\/p>\n This is the basic formula for determining operating cash flow. If you need more help\u00a0 or another perspective, please read the following articles:<\/span><\/p>\n Notice how in this cash flow from operations formula current liabilities are a function of this formula, yet the operating cash flow ratio is used to determine the ability to pay current liabilities. There is a relationship here and it is important for the reader to understand this relationship.<\/span><\/p>\n The primary purpose of the operating cash ratio formula is that it measures the ability to pay current liabilities from operations. Owners, managers, creditors and investors all want assurance that the core business operation can pay the current bills. This appears simple. But it is flawed.<\/span><\/p>\n Suppose current operations cash flow is $12,000 and the current liabilities are $4,000. This means the cash flow from operations can easily cover current liabilities three times. The problem is that cash flow from operations is a derivative of current liabilities. This means the change in current liabilities determines the amount of operating cash flow that in turn determines the ability to pay those same current liabilities. Let\u2019s clarify with an example.\u00a0<\/span><\/p>\n In this situation, using the information from above, suppose the current liabilities increased from $2,000 to $4,000 during the operating period. From the formula above this means the company borrowed $2,000 during the operating period. The formula states that when current liabilities increase, add any increase in current liabilities, see Step Three. In reality, the operating cash flow was $10,000 (net of the current liabilities increase). If you adjust the formula to exclude the current liabilities increase the ratio drops from 3:1 to 2.5:1.<\/span><\/p>\n \u00a0 Operating Cash Ratio (Excludes Increase in Current Liabilities)\u00a0 = $10,000<\/u><\/span> Notice that with this adjusted formula, the denominator (current liabilities) stays at $4,000 reflecting the balance currently not adjusted.\u00a0<\/span><\/p>\n This is a big difference than a 3:1 ratio. It would appear the formula is flawed. Or is it?<\/span><\/p>\n For those readers already experienced with the business relationship, stop here and proceed to the next section \u2018Uses and Application of the Operating Cash Ratio\u2019.<\/span><\/p>\n The ratio\u2019s internal flaw is this change in current liabilities. More sophisticated business investors and entrepreneurs will exclude any increases in current liabilities during the period in calculating operating cash flow. Decreases are still included as they negatively impact cash flow from operations (a decrease in current liabilities during the accounting period is via the use of cash to pay down current liabilities therefore decreasing operational cash flow). It is a more conservative approach. Here is an illustration.<\/span><\/p>\n Sampson is an oil drilling enterprise with 18 rigs. During the month of June, Sampson\u2019s operating cash flow as reported on the cash flows statement was $211,000. The current liabilities increased from $137,000 to $153,000 during June. Sampson\u2019s management uses the traditional operating cash ratio and the adjusted operating cash ratio (excludes an increase from cash flow from current liabilities) to report the results. Here is the analysis.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0SAMPSON DRILLING<\/span><\/strong><\/span> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Operating Cash Ratio\u00a0\u00a0\u00a0\u00a0 Operating Cash Ratio<\/strong><\/span> The adjusted cash ratio (excluding any cash flow increase due to current liabilities increase) is always lower than the traditional formula.\u00a0\u00a0<\/span><\/p>\n Sophisticated users of the ratio take a more conservative position with its use and only adjust for increases in current liabilities (borrowing money) to get a value that reflects the ability to pay current liabilities from operating income as if that operating cash income had never increased its value due to short-term borrowings.<\/span><\/p>\n Always remember, the adjusted operating cash ratio can only be lower than the traditional value. It is only used when current liabilities increase during the accounting period because increases in current liabilities increase operating cash flow.<\/span><\/p>\n What is interesting is that this relationship issue remains linear when calculating this operating cash ratio with very small business environments through large operations. Let\u2019s compare the operating cash ratio for a Mom and Pop auto repair shop to a chain network of 20 shops. Both have a 10% increase in current liabilities during the accounting period.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0 Mom & Pop\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Medium Chain (20 Shops)<\/strong><\/span> The other liquidity ratios do not have a similar linear relationship. This is because they are purely balance sheet driven and this ratio incorporates the income statement and its relationship with one section of the balance sheet (current liabilities). This utilization of both financial statements requires the user to be more alert and attentive to the derivative.<\/span><\/p>\n At the end of the day, the operating cash ratio is not a pure liquidity ratio, it is more a hybrid between activity ratios (the next section group of ratios) and liquidity ratios.<\/span><\/p>\n Now that the reader has an understanding of the operating cash ratio, it is time to explain the uses and application of the operating cash ratio.<\/span><\/p>\nOperating Cash Ratio – Cash Flows From Operations<\/strong><\/span><\/h2>\n
\n
\n
\n\u00a0 \u00a0Plus\/Minus Any Noncash Deductions on the Income Statement\u00a0 \u00a0 \u00a0\u00a0\u00a0 Z,ZZZ<\/span>
\n\u00a0 \u00a0Plus\/Minus The Change in Current Assets Net of Cash\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Z,ZZZ<\/span>
\n\u00a0 \u00a0Plus\/Minus The Change in Current Liabilities\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0Z,ZZZ<\/u><\/span>
\n\u00a0 \u00a0Cash Flow From Operations\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $ZZ,ZZZ<\/span><\/p>\n
\n Add Back:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Balance Sheet Section
\n<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Depreciation\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$Z,ZZZ\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Fixed Assets<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Amortization\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0ZZZ\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Other Assets<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Warranties (Allocation)\u00a0 \u00a0 \u00a0 ZZZ\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Other Assets<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Long-Term Prepaid\u00a0 \u00a0 \u00a0 \u00a0 \u00a0Z,ZZZ<\/u>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Other Assets<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Subtotal\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Z,ZZZ
\n<\/u>Balance Forward to Step Two\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $ZZ,ZZZ<\/span><\/p>\n
\n\u00a0 \u00a0–\u00a0 Inventory\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 – Prepaid Expenses<\/span><\/p>\n
\n Comparative Balance Sheets (Limited Scope)<\/span>
\n Periods Ending December 31, 2015 and 2016<\/span><\/p>\n
\n<\/u>\u00a0 \u00a0 \u00a0Cash\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $72,714\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $79,642\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $6,928<\/span>
\n\u00a0 \u00a0 \u00a0Inventory\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a017,409\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a015,657\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (1,752)<\/span>
\n\u00a0 \u00a0 \u00a0A\/R \u2013 Wyle E. Coyote\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a042,643\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a049,714\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 7,071<\/span>
\n\u00a0 \u00a0 \u00a0Prepaid Expenses\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 4,614<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a04,279<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0\u00a0(335)<\/u><\/span>
\n\u00a0 \u00a0 \u00a0Total Current Assets\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $137,380\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$149,292\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $11,912<\/span>
\n\u00a0 \u00a0 \u00a0Exclude Change in Cash\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(6,928)
\n<\/u>Change in Current Assets for Use in
\nDetermining Cash Flow From Operations\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$4,984<\/span><\/p>\n\n
\n<\/u>\u00a0 \u00a0 \u00a0 Accounts Payable\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $21,417\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $26,209\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$4,792<\/span>
\n\u00a0 \u00a0 \u00a0 Credit Card Accounts\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 3,008\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,593\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(415)<\/span>
\n\u00a0 \u00a0 \u00a0 Accrued Expenses\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,447\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 8,288\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0841<\/span>
\n\u00a0 \u00a0 \u00a0 Taxes Payable\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a05,033\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0712\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(4,321)<\/span>
\n\u00a0 \u00a0 \u00a0 Lines of Credit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 12,000<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a09,000<\/u>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(3,000)<\/u><\/span>
\n\u00a0 \u00a0 \u00a0 Total Current Liabilities\u00a0 \u00a0 \u00a0 \u00a0 $48,905\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $46,802\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0($2,103)<\/span><\/p>\n\n
\n
Operating Cash Flow and Current Liabilities<\/strong><\/span><\/h2>\n
\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0$4,000
\n<\/span>\u00a0 Operating Cash Ratio (Adjusted) = 2.5:1<\/span><\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Operating Cash Flow Ratio Analysis<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 June 20ZZ<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Traditional Formula<\/u>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Adjusted Formula<\/u><\/span><\/strong><\/span>
\n Cash Flow From Operations\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $211,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $211,000<\/span>
\n Adjustments\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 -0-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (16,000) Increase in C\/L<\/span>
\n Adjusted Cash Flow From Ops\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $211,000<\/u>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $195,000<\/u><\/span>
\n Divided by Current Liabilities\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $153,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $153,000<\/span>
\n Operating Cash Ratio\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.38:1\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.27:1<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Auto Repair<\/u>\u00a0 \u00a0 \u00a0 \u00a0Network Auto Repair Chain<\/u><\/span><\/strong><\/span>
\n Operating Cash Flow\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$42,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $840,000<\/span>
\n Increase in C\/L\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(10,000)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (200,000) Factor of 20<\/span>
\n Adjusted Cash Flow\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a032,000<\/u>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 640,000<\/u><\/span>
\n Current Liabilities\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a022,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 440,000\u00a0 Factor of 20<\/span>
\n Adjusted Operating Cash Ratio\u00a0 1.45:1\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.45:1<\/span>
\n Normal Operating Ratio\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.91:1\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.91:1<\/span><\/p>\n