Financial data for Otto Company follow: For Year Ended December 31 Cash on December 31 $ 69,350

Financial data for Otto Company follow:

For Year Ended December 31

Cash on December 31 $  69,350

Cash flow from operations (114,000)

a. Compute the ratio of cash to monthly cash expenses.

b. Interpret the results computed in (a).

Answer:

Ratio of Cash to Monthly Cash Expenses b. The preceding computations indicate that Otto Company has 7.3 months of cash remaining as of December 31. Otto Company will need to generate positive cash flow from operations or raise additional financing from its owners or by issuing debt.