Cambridge Construction Company follows the percentage-of-completion method for reporting long-term contract revenues. The percentage of completion is
Question:
Cambridge Construction Company follows the percentage-of-completion method for reporting long-term contract revenues. The percentage of completion is based on the cost of materials shipped to the project site as a percentage of total expected material costs. Cambridge’s major debt agreement includes restrictions on net worth, interest coverage, and minimum working capital requirements. A leading analyst claims that “the company is buying its way out of these covenants by spending cash and buying materials, even when they are not needed.” Explain how this might be possible.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Business Analysis Valuation Using Financial Statements
ISBN: 978-1111972301
5th edition
Authors: Paul M. Healy
Question Posted: