EX 8-28 Cash to monthly cash expenses ratio
Allos Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of cancer. Allos Therapeutics reported the following financial data (in thousands) for the years ending December 31, 2008, 2007, and 2006.
For Years Ending December 31 2008 2007 2006 Cash and cash equivalents $ 30,696 $ 16,103 $ 10,437 Net cash fl ows from operations (42,850) (30,823) (25,147)
a. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Answer:
a.
2008: $3,570.8 ($42,850/12) per month
2007: $2,568.6 ($30,823/12) per month
2006: $2,095.6 ($25,147/12) per month
b.
2008: 8.6 ($30,696/$3,570.8) months
2007: 6.3 ($16,103/$2,568.6) months
2006: 5.0 ($10,437/$2,095.6) months
c.
Since 2006, Allos Therapeutics monthly cash expenses have increased from $2,095.6 in 2006 to $3,570.8 in 2008. At the same time, the ratio of cash to monthly cash expenses has increased from 5.0 months at the end of 2006, to 8.6 months at the end of 2008. During 2007 and 2008, Allos Therapeutics sold additional stock, thus causing the increase in the ratio of cash to monthly cash expenses. However, Allos Therapeutics will run out of cash in less than nine months unless it changes its operations or raises additional financing. Unless the company improves its cash flows, it may have difficulty raising sufficient cash from investors or creditors to continue operations in the long term.
For Years Ending December 31 2008 2007 2006 Cash and cash equivalents $ 30,696 $ 16,103 $ 10,437 Net cash fl ows from operations (42,850) (30,823) (25,147)
a. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Answer:
a.
2008: $3,570.8 ($42,850/12) per month
2007: $2,568.6 ($30,823/12) per month
2006: $2,095.6 ($25,147/12) per month
b.
2008: 8.6 ($30,696/$3,570.8) months
2007: 6.3 ($16,103/$2,568.6) months
2006: 5.0 ($10,437/$2,095.6) months
c.
Since 2006, Allos Therapeutics monthly cash expenses have increased from $2,095.6 in 2006 to $3,570.8 in 2008. At the same time, the ratio of cash to monthly cash expenses has increased from 5.0 months at the end of 2006, to 8.6 months at the end of 2008. During 2007 and 2008, Allos Therapeutics sold additional stock, thus causing the increase in the ratio of cash to monthly cash expenses. However, Allos Therapeutics will run out of cash in less than nine months unless it changes its operations or raises additional financing. Unless the company improves its cash flows, it may have difficulty raising sufficient cash from investors or creditors to continue operations in the long term.
