Problem:
You and the VP of Accounting are meeting with the CFO next week to discuss critical areas of the operating budget for next year and the capital budget as well. Of particular concern to the CFO is the company's working capital position, the impact of some short-term notes that the company must pay-off next year, the company's current ratio, and determining how to finance a major capital project (construction of a new production plant).
Assume you are organizing your thoughts for the meeting with the VP of Accounting in preparation to meet with the CFO later. Discuss the following topics, giving examples: (1) how working capital can impact a company's finances; (2) what the company can do to handle short-term debt that is coming due; (3) explain current ratio, discuss its implications, and describe a good current ratio; and (4) describe briefly how businesses make capital budgeting decisions.