Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 7 Sarbanes-Oxley, Internal Control, and Cash 339

Colgate-Palmoliveis a consumer products company with the leading toothpaste brand in the

United States. In addition, Colgate sells bar and liquid hand soaps, shower gels, shampoos, con-

ditioners, deodorants, antiperspirants, and shaving products. The following operating results (in

thousands) are for years ending December 31:

a. Compute the ratio of cash flow to net income for each year. Round to one decimal place.

b. Is there a significant difference between the ratios for 2004 and 2003? If so, what are some

possible causes for the difference?

Time Warner Inc.(Time Warner) is a media and entertainment company that includes America

Online, cable systems, film entertainment, television networks, and publishing. The following

operating results (in millions) are for the years ending December 31:

Exercise 7-28

Cash flow to net income
ratio

Goal 8

a. 2004: 1.3

Exercise 7-29

Cash flow to net income
ratio

Goal 8

Exercise 7-30

Cash to monthly cash
expenses ratio

Goal 8

Exercise 7-31

Cash to monthly cash
expenses ratio

Goal 8

Exercise 7-32

Cash to monthly cash
expenses ratio

Goal 8

a. Compute the ratio of cash flow to net income for each year. Round to one decimal place.

b. Is there a significant difference between the ratios for 2004 and 2003? If so, what are some

possible causes for the difference?

During 2007, Kinetic Inc. has monthly cash expenses of $175,000. On December 31, 2007, the cash

balance is $1,575,000.

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

b. Based upon (a), what are the implications for Kinetic Inc.?

Delta Air Linesis one of the major airlines in the United States and the world. It provides pas-

sengers and cargo services for 219 domestic U.S. cities as well as 53 international cities in

35 countries. It operates a fleet of 845 aircraft and is headquartered in Atlanta, Georgia. Delta

reported the following financial data (in millions) for the year ended December 31, 2004:

Net cash flows from operating activities $(1,123)

Cash, December 31, 2004 1,811

a. Determine the monthly cash expenses. Round to one decimal place.

b. Determine the ratio of cash to monthly expenses. Round to one decimal place.

c. Based upon your analysis, do you believe that Delta will remain in business?

HyperSpace Communications Inc. engages in the development, manufacture, and marketing of

network acceleration and data compression software worldwide. Its software products speed up

the delivery of information over computer networks, including the Internet, wireless, broad-

band, private, and dial-up networks. HyperSpace reported the following data (in thousands) for

the years ending December 31:

2004 2003

Net cash flows from operating activities $1,754,300 $1,767,700

Net income 1,327,100 1,421,300

2004 2003

Net cash flows from operating activities $6,618 $6,601

Net income 3,364 2,639