Critical Ratios and The First Necessary Condition for Business Success
Q: General comment: Their term debt is not significantly increasing year over year. The primary increase appears to be in the short-term RLOC (Revolving Line of Credit).
A: You are absolutely correct. Short-term interest-bearing debt increased by $261,962 from $431,876 in 2017 to $693,838 in 2018. The accounts receivable and inventory balances increased by $144,331, and so financing for those operating assets could explain some of the increase on the line of credit. However, as suggested on Slide 62 of today’s presentation, the magnitude of the distributions and loans to Larry Crevin may largely explain the increase. We'll confirm the borrowing causes very explicitly in Session 4 when we construct and interpret a UCA cash flow statement.
Course overview: Critical Ratios and The First Necessary Condition for Business Success