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FINANCIAL REPORTING PROBLEM

# FINANCIAL REPORTING PROBLEM - FINANCIAL REPORTING PROBLEM(a...

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FINANCIAL REPORTING PROBLEM (a) P&G’s short-term borrowings were \$12,039 million at June 30, 2007. SHORT-TERM DEBT (In millions) 2007 Current portion of long-term debt \$ 2,544 USD commercial paper 9,410 Other 85 Total short-term debt \$12,039 The weighted average interest rate is 5.0%. (b) 1. Working capital = Current assets less current liabilities. (\$6,686,000,000) = (\$24,031,000,000 – \$30,717,000,000) 2. Acid-test ratio = Cash + short-term investments + net receivables Current liabilities .40 times = \$5,354,000,000 + \$202,000,000 + \$6,629,000,000 \$30,717,000,000 3. Current ratio = Current assets Current liabilities .78 times = 24,031,000,000 30,717,000,000 While P&G’s current and acid-test ratios are below one, this may not indicate a weak liquidity position. Many large companies carry

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relatively high levels of accounts payable, which charge no interest. For example, P&G has almost \$6,000 million of these short-term obligations, which can be viewed as very cheap forms of financing. Nonetheless, its short-term debt (see part (a)) has increased significantly (from \$2,128 million to \$12,039 million) in 2007, which raises some liquidity/working capital concerns.
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FINANCIAL REPORTING PROBLEM - FINANCIAL REPORTING PROBLEM(a...

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