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    Serg8y55's Avatar
    Serg8y55 Posts: 1, Reputation: 1
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    #1

    Nov 10, 2014, 04:15 PM
    Does net assets represent cash
    Galehouse Gas Stations, Inc. expects sales to increase from $1,500,000 to $1,700,000 next year. Mr. Galehouse believes that net assets (Assets – Liabilities) will represent 70 percent of sales. His firm has a 10 percent return on sales and pays 40 percent of profits out as dividends. (LO4)
    a. What effect will this growth have on funds?

    It is evident that there's cash increase of $105,000, i.e. profit minus dividends paid ($170,000 - $68,000). Net assets is $1,190,000.

    What is not clear to me is whether this amount be added to the firm' balance sheet as a cash component of the growth?

    Thanks
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Nov 10, 2014, 05:08 PM
    Net Assets doesn't represent cash but potential cash flows. Net assets included fixed assets which are revenue producing but will not be realised in cash flows

    Gross cash flow is 1,700,000. Net cash flow is $102,000 and will be represented within net assets so projected net assets becomes $1,292,000
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