How do I find how a firm is financing its assets?

Question

How do i find how a firm is financing its assets?

here is the information:

Pamplin, Inc., Balance Sheet at
12/31/02 and 12/31/03

2002 2003

ASSETS
Cash $ 200 $ 150
Accounts receivable 450 425
Inventory 550 625
• Current assets 1,200 1,200
Plant and equipment 2,200 2,600
• Less: accumulated
Depreciation (1,000) (1,200)
• Net plant and equipment 1,200 1,400
• Total assets 2,400 2,600




 


LIABILITIES AND OWNERS’ EQUITY
Accounts payable $ 200 $ 150
Notes payable–current (9%) 0 150
• Current liabilities $ 200 $ 300

Bonds (8 1/3% interest) 600 600
Owners’ equity
• Common stock $ 300 $ 300
• Paid-in capital $ 600 $ 600
• Retained earnings $ 700 $ 800
•
• Total owners’ equity $1,600 $1,700
Total liabilities and owners’ equity $2,400 $2,600


How do I find how the firm finances its assets? Its assets and liabilities are the same exact number?? I thought you had divide total debts by total assets?

Answer 1

You need to look again. Assets and Liabilities are not the same amount. Assets = Liabilities + Equity. For the current year (2003) Assets were financed 50% by debt (Liabilities) and 50% by Equity. Assets increased by 200, while Liabilities and Equity increased by 100.

Answer 2

No, I don't think so. My knowledge is limited, butni think why you're talking about is the "current ratio" which tests the companies liquidity.



To find out how the firm finances it's liabilities you would be better off taking a look at it's profit and loss account and go through a fairly standard procedure of simply looking at their net profit, checking that this figure is reasonable (there will be financial ratios you could use for that), but basically make sure that the firm itself is running in the black.



The profit and loss account will also show you their sources of income and where their money is spent.



I think the balance sheet (so that it balances) is supposed to show equal figures apart from the final section which shows changes in the value of the business as a result of overall profits/losses and how this has effected the owners accounts etc...

Answer 3

You can get two types of loan.one is a mortgage loan by mortgaging your fixed assets.The second one is working capital loan.working capital is the difference between current assets and current liabilities.you may approach a bank for necessary guidance