FINANCIAL REPORTING PROBLEM

FINANCIAL REPORTING PROBLEM - FINANCIAL REPORTING PROBLEM...

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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
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This note was uploaded on 01/31/2011 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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FINANCIAL REPORTING PROBLEM - FINANCIAL REPORTING PROBLEM...

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