Cash Flow Analysis – Signal Cable Company Essay
SIGNAL CABLE COMPANY
The Signal Cable Company is a cable manufacturer for analog and digital interconnects, speaker, video and home theater cables. It is located in Tarrytown, New York. The company is well known for “highest standard in quality and customer service” and their “superior design” and “No-Hype approach resulted in one of the best price/performance ratio in the industry”.
After Signal Cable had enjoyed quite a run up in profits over the past few years, the management decided to enter in the fiber optic communications business. The market was growing, the demand increased and the competition was not too severe. Eventually, the company established two additional manufacturing …show more content…
Book value is the value of the business according to its financial statements. It is the difference between a company’s total assets and total liabilities. The Signal Cable’s current book value is $792,170 ($2,913,450 - $895,000 - $1,226,280). The market value of the company is higher than its book value.
The book value cannot accurately reflecting the true condition of the company. This is because of the book value just only taking into account the original book cost of acquisition and then deducting depreciation expenses charged over the years and capital expenditures. Some of the fixed assets such as property and land, normally will be appreciation over time. However, the book value only taking into account the cost of acquisition of it.
Furthermore, the market value normally taking into account the ability of the company to generate profit in future but the book value doesn’t. Thus, the book value cannot accurately reflecting the true condition of the company.
4. The board of directors is not clear as to why the cash balance has dropped so much in spite of the increase in sales and the gross profit margin. What should Jay tell the board?
Despite the sales and the gross profit margin both are increased, the cash balance has dropped so much. This is because the increasing number of company’s customers buying on credit. And, it has explained why the account receivable is